Clusters and Internationalization: How does belonging to a cluster influence the process of internationalization and the strategies of its members?

M 2014 CLUSTERS AND INTERNATIONALIZATION: HOW DOES BELONGING TO A CLUSTER INFLUENCE THE PROCESS OF INTERNATIONALIZATION AND THE STRATEGIES OF ITS MEMBERS? SARA DO SOUTO FONTES ANTUNES LOPES MASTER’S DISSERTATION PRESENTED TO THE SCHOOL OF ECONOMICS AND MANAGEMENT FROM THE UNIVERSITY OF PORTO FOR THE MASTER IN INTERNATIONAL ECONOMICS AND MANAGEMENT CLUSTERS AND INTERNATIONALIZATION: HOW DOES BELONGING TO A CLUSTER INFLUENCE THE PROCESS OF INTERNATIONALIZATION AND THE STRATEGIES OF ITS MEMBERS? i Biography Sara do Souto Fontes Antunes Lopes graduated in Economics at the School of Economics and Management of the University of Porto (FEP) in 2013 and is currently finishing the Master in International Economics and Management at the same school. During the journey at FEP, Sara participated in various projects at the student union of FEP (AEFEP) and at NEV (Association of Volunteer Students), currently named as EXUP (Experience Upgrade Program). Sara previously participated in a summer internship at EDP Valor and worked at the finance and human resources department at Adclick. Recently Sara started to work as an assurance assistant at PwC. ii Acknowledgments This dissertation would not have been possible without the precious support received from several people. Their help and encouragement allowed me to gain knowledge that would make the difference in my professional and personal life. Before this dissertation, I was not familiar with the Portuguese agrofood sector, but now this sector fascinates me. Firstly, I would like to thank to my supervisor, Professor Ana Teresa Cunha de Pinho Tavares Lehmann for the most patient and dedicated guidance of this research. Also, for her meticulous attention to detail, her encouragement and comprehension throughout the completion of this dissertation. To Professor Ana Teresa Lehmann, I would like to express my deepest gratitude. I am very grateful to the PortugalFoods leadership, who from the beginning supported the project and was very helpful. Their collaboration was precious in this research. I would like to express my gratitude to all the participants in the interviews, for sharing your knowledge and experience. I would like to thank to all Professors of the Master in International Economics and Management for the knowledge I was taught and to my colleagues of the Master. My most sincere appreciation to all my family, for being an encouragement pillar during this challenge and for always believing in the success of this project. I would also like to express my gratitude to my boyfriend, Ricardo, for all the patience and comprehension. iii Abstract Clusters and internationalization are two phenomena of paramount importance that have been receiving attention in the literature and about which there is a considerable amount of literature. However, literature that addresses the interaction between clusters and internationalization is scarce, which makes this study relevant. The research question underlying this dissertation is: how does belonging to a Cluster influence the process of internationalization and the strategies of its members? This dissertation aims to clarify the mechanisms (based on relevant theories and frameworks) by which this influence occurs. An empirical application based on the experience of PortugalFoods, the Portuguese agrofood cluster, is developed. Primary data was collected through in-depth interviews to a selected number of companies with diverse patterns of internationalization. It was found that the reasons that led firms aspiring an international activity to integrate the cluster were mainly the access to international information and the access to a network, followed by the opportunity to develop joint R&D. A key conclusion arises: despite the differences between the internationalization process of the firms and their capabilities or difficulties, PortugalFoods has a supportive role and acts as a facilitator and a booster in the internationalization of its members. The cluster provides the needed information and helps its members to build or enrich their network. Furthermore, the cluster provides a set of resources to its members and, in more specific issues, gives a more tailored support: contacts of partners, specific information on target markets or support to define positioning in foreign markets. PortugalFoods does not have a decisive role, even in firms taking their first steps, but provides the needed resources to evolve quickly, as well as specific information to help making the right decisions and achieving goals. Keywords: cluster; internationalization; networks; cooperation; PortugalFoods. 1 Introduction Over time, markets became more open and globalized, leading to an overall increase in competition. In the globalization process, clusters became a relevant reality as they represent a new form of organization that opens new opportunities for their member firms and their host regions, since "the enduring competitive advantages in a global economy lie increasingly in local things - knowledge, relationships, motivation - that distant rivals cannot match” (Porter, 1998, p. 77). At the same time, internationalization is an even more relevant phenomenon in the modern world economy, with many organizations embracing the opportunity to go international (Kowalski, 2014) through various entry modes (Foreign Direct Investment/FDI, exports or contractual forms). Despite the undeniable relevance of both phenomena - clusterization and internationalization - the literature and frameworks dealing with their interaction is scarce. On the other hand, the Portuguese enterprise structure is dominated by SMEs that represented in 2011 approximately 99.9% of the total structure of non-financial enterprises (INE, 2013). According to zu Köcker, Müller & Zombori (2011), the lack of resources (human, capital, financial), experience, information about foreign markets and the inexistence of internationalization strategy are other barriers that such firms face a priori in the internationalization process. Firms may “profit from a network or cluster which takes responsibility for the internationalization efforts of its members and assists them in their international orientation of organizations” (zu Köcker et al., 2011, p. 4). However, there is limited literature about clusters in Portugal, and even less about the internationalization of enterprises in clusters. Such blatant scarcity in the literature calls for research in this area. All these reasons motivate and give pertinence to the present study. This dissertation seeks to address the following main research question: “How does belonging to a Cluster influence the process of internationalization and the strategies of its members?”. In order to answer the main research question other research questions arise: 2 1. Which reasons lead companies aspiring to have an international activity to integrate a cluster? What are they expecting from the cluster? 2. Does belonging to a cluster change the internationalization process for companies that already have some form of internationalization, and in what sense? In terms of entry modes? In terms of speed? In terms of choice of markets? 3. The support provided by the cluster is the same whatever the process of internationalization of each company? Does the cluster have the ability to adapt its mechanisms according to the company stage and path of internationalization? Having these questions in mind, the objectives of this dissertation are:  To contribute to the systematization of the extant literature on clusters and internationalization, exploring their interaction;  To propose specific mechanism(s)/framework(s) on how clusters may help their members to internationalize;  To develop an empirical application based on a Portuguese cluster (PortugalFoods, the agrofood sector cluster) which will involve: o A micro analysis of the internationalization process of the selected cluster members on an individual basis; o An assessment on how cluster membership influences the process of internationalization of member companies. In order to achieve these objectives, a review of extant literature was developed, which will be presented in chapter 1. The first subchapter of the second chapter describes the empirical methodology that supported this research. The following subchapter of the same chapter describes the case studies highlighting the process of internationalization and the influence of the cluster in each case. After a process of detailed treatment of the information gathered and based on the main contributions from the literature review, conclusions will be drawn in order to answer the research question. 3 Chapter 1. Literature review 1.1 Clusters The aim of this section is to provide a comprehensive overview of the relevant concepts and literature related to clusters. Firstly, the concepts of industrial districts and clusters will be presented, followed by the characterization of the cluster business environment in terms of entrepreneurship and innovation and the type of firms that are present in the cluster, emphasizing the role of leading firms. This chapter also includes an approach to clusters life cycle and an analysis of their impact on the performance of clustered firms. 1.1.1. From Marshall’s Industrial Districts to Porter's Cluster approach The environment that surrounds firms is determinant to their success and the choice of location is a firm’s strategic decision that influences it’s ability to get competitive advantages. Over time a phenomenon of agglomeration of firms in certain locations has been observed, which has captured the attention of relevant literature and has been analyzed with the aim of understanding the factors that lead to this concentration. Marshall (1920) identified the factors that lead to agglomeration of similar industries in certain places called “industrial districts”: “the concentration of large numbers of small businesses of a similar kind in the same locality” (p. 1302). Initially Marshall (1920) considered climate conditions and resource endowments as factors leading to the emergence of industrial districts. Yet, the author gave more relevance to a second aspect: the concentration of qualified employees in a district. In this issue, migrations movements’ play an important role as, on the one hand, there are non-local workers looking for companies who need their knowledge and, on the other hand, there are companies that look for employees who have the specific skills demanded. This double seek leads to a concentration of employees and firms in certain places. The third explanation given is based on movements of companies to follow other firms, i.e., companies from the same industry tend to choose the same places to be and follow each other: “so great are the advantages which people following the same skilled trade get from near neighborhood to one another” (Marshall, 1920, p. 156). Finally, to explain industrial districts, Marshall (1920) adopted a consumer perspective according to which the consumer is willing to go further to get a specific and important product. 4 Furthermore, with reduced tariffs and costs associated with the transport of goods, consumers will travel a greater distance, which also explains why industries agglomerate. A different perspective to the Marshallian concept of industrial districts is proposed by Pyke, Becattini & Sengenberger (1990), who emphasized the importance neither of the firm nor of the industry, but the linkages between them and the role of networks that allow local firms to be close and interconnected, leading to the emergence of clusters. An industrial district was defined by these authors as a “socio-territorial entity which is characterized by the active presence of both a community of people and a population of firms in one naturally and historically bounded area. In the district, unlike in other environments, such as manufacturing towns, community and firms tend to merge” (Pyke et al., 1990, p. 38). Preceded by Marshall (1920) and Pyke et al. (1990), Porter (1990) proposed a new approach in the industrial districts theme. In “The Competitive Advantage of Nations” Porter (1990) highlighted the crucial role of the local dimension considering that “competitive advantage is created and sustained through a highly localized process” (p. 73) and achieved through acts of innovation. Aiming to explain why companies choose to locate in certain nations and how they are capable of continous processes of innovation, Porter (1990) presented four factors originating “the diamond of national advantage”: factor conditions (nation’s position in production factors); demand conditions (nature of home-market demand); related and supporting industries (presence of supplier or related industries that are internationally competitive) and firms strategy, structure and rivalry (p. 78). As mentioned by Porter (1990) “these determinants create the national environment in which companies are born and learn how to compete” (p. 78). Later Porter (1998) stressed that the choice of location was important to get competitive advantage, but the determinants that influence this decision have changed over time. If earlier the locations that were richer in resources, like supply of cheap labor which leads to a reduction in input costs, used to be a location’s comparative advantage, now the focus is not only on the firm itself, but also on the external and business environment, leading to the emergence of clusters. This view is consistent with Marshall (1920) and with the network contributions of Pyke et al. (1990). The focus of 5 location decision is not on the firm itself but on the potential of the external environment that surrounds it. Table 1: Factors that influence the location decision Source: Own elaboration. Over time, the factors that lead to the emergence of industrial districts, or that influence the choice of location, have shifted from production factors to factors that characterize the environment in which the company operates. The relevance of business environment is reflected in Porter’s (1998) definition of clusters “geographic concentrations of interconnected companies and institutions in a particular field” (p. 78). In this concept the author considers several actors and institutions as part of the cluster: customers, suppliers, firms in related industries and also “governmental and other institutions - such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations - that provide specialized training, education, information, research, and technical support” (p. 78). Langen (2002) defined cluster in a different way: “a population of geographically concentrated and mutually related business units, associations and public (private) organizations centered around a distinctive economic specialization” (p. 210). With this definition, the author emphasizes four aspects (p. 210): 1. a cluster is not an entity, but a population leading to an internal heterogeneity of clusters; Marshall (1920)  Climate conditions and resource endowments  Concentration of qualified employees/migrations movements  Movements of companies to follow other firms  Consumer perspective  Tariffs and costs associated with transport Pyke et al. (1990)  Networks that allow local firms to be interconnected Porter (1998)  The diamon of national advantage: o factor conditions o demand conditions o related and supporting industries o firms strategy, structure and rivalry  External and business environment 6 2. clusters are geographically concentrated and they can be local, regional or interregional; 3. the population consists of business units, associations, public-private organizations such as education or research institutes if they are engaged in the cluster activities; 4. the existence of a cluster core that is a “spatial concentration of similar activities”. Several indicators can be used to measure the strength of relations: “economic transaction with the cluster core; use of common cluster resources; membership of cluster associations and inclusion in a regional learning system” (Langen, 2002, p. 210). Both definitions of clusters indicate a geographical concentration of related industries. 1.1.1.1. Agglomeration economies Industrial clusters can be characterized in terms of nature of firms in the cluster, nature of their relations and transactions undertaken, leading to three types of agglomeration models (Iammarino & McCann, 2006, p. 1022): 1. Pure agglomeration model – characterized by transient inter-firm relations, in which firms do not have market power and continuously change their relations with other firms and customers, leading to an intense local competition and absence of loyalty and long-term relations; 2. Industrial complex – characterized by long-term stable and predictable relationships that involve frequent transactions; 3. Social Network – presence of mutual trust relations between key agents; it is an aspatial model, but proximity tends to foster trust relations, leading to a local business environment of confidence, risk-taking and cooperation. Clusters result from agglomeration economies. Those economies “arise within clusters of complementary industries related by technology, skills, shared infrastructure, demand and other linkages” (Delgado, Porter & Stern, 2010, p. 2). 7 Several mechanisms explaining why firms agglomerate were identified. Following Marshall (1920), studies have recognized three drivers of agglomeration economies (Delgado et al., 2010; Iammarino & McCann, 2006; Langen, 2002, p. 211): 1. Labor market pooling – “reduces search costs and allows specific training and education programs, which upgrade the quality of the labor pool” (Langen, 2002, p. 211); 2. Input-output linkages - presence of suppliers and customers in a cluster which proximity allows low transport costs and “enables closer monitoring and frequent face-to-face contacts” (Langen, 2002, p. 211); 3. Presence of knowledge spillovers in clusters. Following the driver of labor market pooling, Delgado et al. (2010) defined clusters as “collections of industries with high levels of co-location in terms of employment” (Delgado et al., 2010, p. 3). Krugman (1990) had a different approach and considered that scale economies and transportation costs were the main reasons that could explain why manufacturing is concentrated in a certain area, remaining other regions with the role of agricultural suppliers to the manufacturing core: “in order to realize scale economies while minimizing transport costs, manufacturing firms tend to locate in the region with larger demand, but the location of demand itself depends on the distribution of manufacturing” (pp. 483-485). According to the Krugman (1990) model of geographical concentration of manufacturing, agricultural production has constant returns to scale, thus its location depends on the distribution of suitable land. The model assumes that manufacturers have increasing returns to scale. Hence, because of economies of scale, manufactures will be placed in a limited number of locations and those locations are closed to demand “since producing near one’s main market minimizes transportation costs” (p. 485). There is a circular effect due to which “manufactures production will tend to concentrate where there is a large market, but the market will be large where manufactures production is concentrated” (p. 486). Later, Krugman (1998) presented a different approach according to which there are centripetal forces promoting geographical concentration of activities, and centrifugal forces working against it. The centripetal forces are the three sources of external economies presented by Marshall 8 (1920): market-size effects; thick labor markets and pure external economies via information spillovers. The centrifugal forces identified were: immobile factors like dispersed production factors (demand side) or obligatory placement of production where consumers are (supply side); land rents as concentration leads to an increase of land price; pure external economies that can cause congestion (p. 8). Other agglomeration drivers that stimulate firms to locate in clusters where identified by Delgado et al. (2010, p. 5): local demand characteristics; specialized institutions and the structure of regional business; social networks. The presence of strong clusters environment – strong clusters were defined as large presence of other related industries – “reduces barriers to entry and enhances regional comparative advantage, should be a central driver of entrepreneurial vitality” (Scott, 2010, p.5). As shown, the existing literature about the drivers of agglomeration economies presents different explanations to the emergence of this phenomenon. Instead of using external economies to analyze regional economies, Saxenian (1996) suggested the network approach. Saxenian (1996) made significant contributions to this theme with an analysis to two American leading technology regions: Silicon Valley and Route 128. According to the author, agglomeration and external economies cannot explain why these regions responded so differently to the same external shock and intensified international competition: Silicon Valley recovered quickly from the crises of 1980, showing a rapid growth of stat-up businesses; Route 128 has shown few signs of reversing a decline that began in the early 1980s. “A network approach can be used to argue that, despite similar origins and technologies, Silicon Valley and Route 128 evolved distinct industrial systems in the postwar period” (Saxenian, 1996, p. 45). Silicon Valley has a dense regional network characterized by: the presence of informal communication and cooperation to learning among specialist producers of related industries, while simultaneously competing intensely; open labor market that encourages entrepreneurship and experimentation. Route 128 has a different reality: “dominated by autarkic corporations that internalize a wide range of productive activities. Practices of secrecy and corporate loyalty govern relations between these firms and their customers, suppliers, and competitors, reinforcing a regional culture that encourages stability and self-reliance” (Saxenian, 1996, p. 45). 9 Taking for instance the case of the Silicon Valley, Saxenian (1996) suggests the network form of organization as a driver to regional agglomeration. Reinforces the importance of the network and the difference it made in these two cases by adding: “proximity facilitates the repeated, face-to-face interaction that fosters the mix of competition and collaboration required in today’s fast-paced technology industries. Yet the case of Route 128 demonstrates that geographic clustering alone does not ensure the emergence of regional networks” (Saxenian, 1996, p. 57). Silicon Valley portrays an example of a dynamic network environment identified in several studies about clusters. The following section is focused on this dynamic cluster business environment that impacts the relations established within the cluster. 1.1.2. Cluster business environment Following Porter’s (1998) cluster definition, within a cluster there can be a huge variety of companies and institutions. According to Furlan & Grandinetti (2008) in a cluster there are usually two types of firms: firms producing final goods and firms operating in business (B2B) markets. In the first case, their business is driven to exports and largest firms are progressively more involved in cross-border operations. Firms that operate in business markets usually work with intermediate goods, business services and machinery and technologies, and their customers are co-located. These firms represent different stages of the value chain, but both get their inputs from local suppliers (Furlan & Grandinetti, 2008) which reflects Porter’s idea that “a cluster, then, is an alternative way of organizing the value chain“ (Porter, 1998, p. 80). The agrofood industry in Moderna, Italy, illustrates Porter (1998) idea of a cluster that represents an alternative way to organize the meat processing industry. Moderna cluster is characterized by a dense network of SMEs, which promotes a high degree of division of labor, leading to a strong specialization of each stage of production: “the enterprises (agricultural and industrial) are linked by a network of inter-industrial relationships involving the mutual supply of specific products, essential for the production process of each player. The network of relationships also involves the trade in finished products, ready for distribution, which firms purchase from each other depending on order trends” (Bertolini & Giovannetti, 2006, p. 284). To Bertolini & Giovannetti (2006) this form of 10 organization of the industry is a reaction of the industry to face globalization, as cooperative movements allow a reduction of transactions costs. Competition and cooperation are two realities that can be promoted simultaneously in the clusters’ business environment (Porter, 1998). On the one hand, firms will act as rivals and compete to hold their customers but, on the other hand, there is a culture of cooperation where interests are aligned and that enables cooperation between firms operating in related or complementary industries or institutions (vertical cooperation). Furthermore, clusters business environment is characterized by a climate of understanding and trust that benefits the companies operating there. According to Maskell (2001, p. 926), co-localized firms benefit from that environment: it reduces malfeasance; induces volunteering of reliable information; causes agreements to be honored; places negotiations on the same wavelength; eases the sharing of tacit knowledge. According to Maskell (2001), the main reason for clusters’ existence is the enhanced knowledge creation that takes place in the vertical and horizontal dimensions (p. 924). The vertical dimension includes business partners and collaborators and is formed by “firms with dissimilar but complementary capabilities that carry out complementary activities” (p. 927). The horizontal dimension of the cluster corresponds to Marshall (1920) description of firms “with similar capabilities that carry out similar activities” (p. 927) and in this dimension rivals and competitors can be found. Maskell (2001) considered that “it is by watching, discussing and comparing dissimilar solutions – often emerging from everyday practices – that firms along the horizontal dimension of the cluster become increasingly engaged in the process of learning and continuous improvement, on which their survival depends” (Maskell, 2001, p. 929). Depending on the type of flow, knowledge spillovers can be perceived by firms as being positive or negative. If it is an inflow of knowledge, Iammarino & McCann (2006) safely assume that all firms perceive it positively. However, an unintentional outflow of knowledge can have a negative effect in two situations (Iammarino & McCann, 2006): “the private effect of an unintentional knowledge outflow on the owner firm is a leakage of its valuable intellectual capital” (p. 1023); “where any knowledge outflows from a 17 1.1.4. Impact on the performance of clustered firms The interaction between companies and institutions embedded in the cluster favors the foundation, establishment and fosters the development of firms and businesses. Yet, some studies reveal inconsistent results about the effect of clusters in performance: “while a number of studies have found that clusters enhance the probability of entry, survival, and growth of new firms; other studies indicate that location in a cluster decreases the survival chances of new firms” (Wennberg & Lindqvist, 2010, p. 222). With the purpose of evaluating the effects of clusters on the survival and performance of new entrepreneurial firms, Wennberg & Lindqvist (2010) developed a study among 4.397 Swedish firms from different sectors (telecom, financial services and pharmaceutical) and “found evidence that a high concentration of own cluster employment (in same industry and related industries) was related to better chances of survival, higher employment, higher tax payments, and higher salary payments” (Wennberg & Lindqvist, 2010, p. 238). Furthermore, they concluded that “clusters do provide economic benefits not only for firms in general, but also for newly started entrepreneurial firms in particular (…) not only have higher survival rates, but also have higher economic performance” (Wennberg & Lindqvist, 2010, p. 238). According to Porter (1998), members of a cluster benefit from a dynamic environment that allows them to achieve a better performance. Companies within the clusters will have better access to sourcing inputs such as specialized employees, with lower cost of recruitment and easier and less costly access to suppliers already present in the location. Personal relationships and community ties play an important role as they are a channel for transfer of specialized information. Cluster members are complementary and dependent: on the one hand, the products they offer can be complementary, on the other hand, in a marketing perspective, the impact of marketing strategies will affect the whole cluster and their reputation, thus making the location more or less attractive to customers. All members will take advantage of investments, e.g. infrastructure, made by government or public institutions. Finally, local rivalry works as a motivation to perform better and, as all firms have access to the 18 same resources and conditions, it becomes easier to measure their performance (Porter, 1998, pp. 81-83). However, a research by Klumbies & Bausch (2011) analyzing 42 different research studies concluded that the influence of clusters in the performance of clustered companies is not so linear as pointed by Porter (1998). The authors identified a negative influence of the agglomeration effect that was explained by the apprehension of entrepreneurs about leakage of internal information or knowledge due to the proximity between companies, and the risk of employee turnover. On the other hand, they concluded that the presence of foreign firms has a positive effect since the performance of local firms increases. The studies analyzed indicate that access to cluster infrastructure does not seem important, indicating no relevant influence in clustered companies’ performance. This research found positive effects, negative effects and in other situations could not confirm any influence, leading to mixed results about cluster’s influence. For Langen (2002) cluster performance is measured in value added: “a good performance is shown by a rise in the value added generated in the cluster” (Langen, 2002, p. 211). Plus, cluster performance depends on economic and institutional characteristics. Langen (2002) developed a framework to analyze cluster performance based on structure and cluster governance. The author identified four structural factors that influence cluster performance: presence of agglomeration economies; internal competition that fosters specialization; entry barriers that have a negative effect and exit barriers that tie firms to a cluster; heterogeneity of cluster population (economic activity, size, international presence, innovative strategy) that adds performance. Cluster governance can be defined as “the mix of and relations between different modes of governance, i.e. mechanisms to co-ordinate interaction in a cluster” (Langen, 2002, p. 212). The variables identified related to cluster governance were: the presence of trust and intermediaries that reduce transaction costs; the leader firm’s behavior, since such firms treat the interests of the cluster as a whole; solutions for collective problems (e.g. education and training), which is a role of associations that act in the interest of their members and provide collective goods to cluster members. Therefore, the influence of the cluster on the company’s performance is not a consensual topic in the literature. 19 The interest and analysis of clusters is not new, albeit it has been changing. This is a reality that year after year has captured more attention and different approaches and studies with dissimilar conclusions arise. 1.2. Internationalization: concept and theoretical frameworks For different reasons, internationalization is a theme that has gained attention from distinct perspectives and from diverse actors: companies are concerned about making their operations more effective and efficient in a more competitive global environment; governments seek to ensure that the overall process has a positive effect on the national interest; trade unions are concerned with the impact on working conditions, wages and their own power (Welch & Luostarinen, 1988, p. 36). For Welch & Luostarinen (1988), internationalization describes an “outward movement in an individual firm’s or larger grouping’s international operations” (p.37). They defined internationalization as “the process of increasing involvement in international operations” (p. 37). Calof & Beamish (1995) adopted a different perspective, defining internationalization as “the process of adapting firm’s operations (strategy, structure, resource, etc) to international environment” (p.116). The internationalization strategy of the company can be materialized in different modes of entry to reach a target market: exports; contractual forms (licensing, franchising, management contracts, turnkey contracts, subcontracting, production sharing and strategic alliances), and foreign direct investment (FDI) (Dunning, 1988). The most influential and traditional theory on internationalization is the Uppsala Internationalization Model, but other approaches like Born Globals, International New Ventures and Networks Theory are also relevant in this regard. 1.2.1. Uppsala Internationalization Model Through an empirical research in four Swedish firms, Johanson & Wiedersheim-Paul (1975) and Johanson & Vahlne (1977) developed a model of the internationalization process of a firm: the Uppsala Model. This model describes a gradual process of 20 internationalization and is focused on the gradual acquisition and integration of knowledge and also on successively increasing commitment with foreign markets. Johanson & Wiedersheim-Paul (1975) identified four different stages that give rise to “the establishment chain”. In the first stage, the focus is on the domestic market and there is no regular exports activity, meaning a low resource commitment as a result of the lack of a channel of regular information about the market. In the second stage, there is a channel through which the firm receives regular market information, allowing a higher degree of commitment, and the firm starts to export, eventually using independent representatives (agents). In the third stage, the company sets up a sales subsidiary and controls the information channel. The last step is the establishment of a production/ manufacturing facility in the host market, which requires a large commitment of resources. As the firm goes through these steps, it can access more information, gain more experience and knowledge about the market, which is reflected in the degree of commitment and involvement that increases gradually. Due to changes in business practices and theoretical advances, Johanson & Vahlne (2009) revisited the model and added some new considerations to the initial one. Contrasting with the neoclassical market, characterized by independent suppliers and customers, Johanson & Vahlne (2009) describe the business environment as a web of relationships and networks where all players are linked. Comparing the old and the revisited model, Johanson & Vahlne (2009) state that they “were not aware of the importance of mutual commitment for internationalization. Now our view is that successful internationalization requires a reciprocal commitment between the firm and its counterparts” (p. 1414). In this new approach, relationships became central, performing essential roles in internationalization: as channels for learning, creating new knowledge through the network and access certain types of knowledge that are confined to network insiders; relationships are important to build trust and commitment relations, which are preconditions to internationalize and have impact on the selection of the foreign market and on the entry mode, adding that “foreign market entry should not be studied as a decision about modes of entry, but should instead be studied as a positionbuilding process in a foreign market network” (p. 1415). Johanson & Vahlne (2009) add: “internationalization depends on a firm’s relationships and network (…) expect the focal firm to go abroad based on its relationships with important partners who are 21 committed to developing the business through internationalization (…) focal firm is also likely to follow a partner abroad if that partner firm has a valuable network position in one or more foreign countries” (p. 1425). One of the main contributions that lead this revision of the Uppsala Model, was the Network Model of Internationalization developed, based on business network research, by Johanson & Mattsson (1988). 1.2.2. Network Theory According to Holm, Eriksson & Johanson (1996) “while most research on foreign market entry has focused on entry mode selection, our findings indicate that the development of cooperative relationships with customers, suppliers or other business partners may be critical” (p.1049). The network model of internationalization is defined by Johanson & Mattsson (1988) as a “model that describes industrial markets as networks of relationships between firms” (p. 287), thus allowing the influence of external actors in the internationalization process. The authors assume “that firms in industrial markets are linked to each other through long-lasting relationships. They establish and develop complex, inter-firm information channels, and they also develop social and technical bonds with each other” (p. 290). Trust between partners is a condition to do business. To ensure that commitments are fulfilled, it is necessary to invest in strong relationships between suppliers and customers and establish contacts at several levels in the organizational hierarchies. In the internationalization process, networks are a strategic resource that encourages and supports firms to go aboard. The industrial network model assumes that “firms depend on resources controlled by other actors, and that access to such resources can be gained through network positions” (Karlsen & Nordhus, 2011, p. 203). A common obstacle to internationalization is the lack of information and networks can have an important role to overcome this, as firms can transfer knowledge and share experiences gained from foreign markets and cooperate. This experimental knowledge “reduces the firm’s perception of market uncertainty or risk, which, in turn, impacts on commitment to 22 international markets” (Hadley & Wilson, 2003, p. 699). The network model views markets as networks of firms where firms establish relationships to obtain resources, sell products and get information about foreign markets (Karlsen & Nordhus, 2011). At an international level and according to the network model “the internationalization of the firm means that the firm establishes and develops positions in relation to counterparts in foreign markets. This can be achieved: (1) through establishment of positions in relation to counterparts in national networks that are new to the firm – international extension; (2) by developing the positions and increasing resources commitments in those nets abroad in which the firm already has positions – penetration; (3) by increasing co-ordinations between positions in different national nets – international integration” (Johanson & Mattsson, 1988, p. 296). A more extensive network with internationally experienced actors and the firm’s international experience will enable the firm to get a better position within the network and perhaps skip some steps in the internationalization process. Johanson & Mattsson (1988) used a framework where four situations of internationalization were identified: the early starter, the late starter, the lonely international and the international among other. The “Early Starter” firm has little or no experience in operating in foreign markets and its network is characterized by a low degree of internationalization, leading to a low commitment with foreign markets and weak information channels with foreign networks. In this type of firms, knowledge has to be acquired through interaction with the market (learning by doing) and could also be acquired through its network. However, since their network has a low degree of internationalization, the available knowledge resources are limited (Hadley & Wilson, 2003). The firm’s network has great relevance in the “Late Starter”, given that in this situation the firm has a low degree of internationalization but has a good home position within a highly internationalized network, leading the firm to internationalize through its network, perhaps without taking all the internationalization steps (Karlsen & Nordhus, 2011). Although network members do not have international experience, the “Lonely International” firm has a high degree of internationalization and a great degree of commitment to foreign markets. It has higher levels of experiential knowledge than both the Early Starter and the Late Starter (Hadley & Wilson, 2003). If a firm is 23 “International Among Others”, it has a high degree of internationalization and experience in integrating and coordinating its network positions through joint ventures, mergers and acquisitions leading to international independence (Karlsen & Nordhus, 2011). According to network model, as firms go international and the degree of internationalization increases, the number of strong and high commitment relationships established all over the world increase, and their network becomes richer. 1.2.3. Born Global Rennie (1993)’s study in Australia’s high-value added manufacturers identified two types of exporting firms: a more traditional with domestic-based firms and the born global firms. The first was the traditional exporting firm that, after having the core business well established in the domestic market, starts to export to foreign markets. The second type is born global firms, mainly small and medium-sized enterprises (SMEs), that start to export very early, on average two years after their foundation (Rennie, 1993). The process of internationalization of a born global is accelerated as these companies possess a global vision and globalize very quickly without being a long period in the domestic market. According to Gabrielsson & Kirpalani (2004), born global firms “often rapidly globalize their business by methods that circumvent many of the existing international business research paradigms” (p.556). As their resources are limited and they cannot take a huge risk to reach new international business, they are usually organized with an alternative governance style, in which their distribution channels depend on hybrid structures, like close relationships or network partners. The authors identified the following channels used to minimize the risks taken: multinationals acting as systems distributing born global products/services; networks as partnerships for born global and the internet as a method to generate networks and do marketing, which is also a framework to overcome their lack of resources (Gabrielsson & Kirpalani, 2004). 24 1.2.4. International New Ventures (INV) Contrasting with the traditionally expected characteristics of multinational enterprises, an international new venture is a “business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries (…) The distinguishing feature of these start-ups is that their origins are international as demonstrated by observable and significant commitments of resources (e.g., material, people, financing, time) in more than one nation” (Oviatt & McDougall, 2005, p. 31).Although “creating a global start-up does not guarantee it will be a success” (Oviatt & McDougall, 1995, p. 34) seven characteristics associated with the survival, growth and success of these ventures were identified: 1. A global vision of the founders and their ability to communicate that vision; 2. The accumulated international experience of founders or managers; 3. Strong international business networks, built during previous international experiences, which enables them to access important resources; 4. The possession of a distinctive advantage, for instance a distinctively valuable product or service, to enter in a foreign market with success; 5. Hold unique and intangible assets in order to sustain their advantage and to avoid being imitated by competitors; 6. Continuous innovation and ability to make extensions of the initial products or services; 7. Be coordinated on a global scale to access the resources need. Although INVs have limited resources, recent technological innovations, low-cost communication technology and transportation allowed global start-ups to access business opportunities and compete successfully in multiple countries as well as mature corporations. The network model and Resource Based View (RBV) are linked with INVs. As pointed by Nicole E Coviello & Cox (2006), due to the liabilities of newness and smallness INVs may not have access to the resources needed and “the networks of relationships can be valuable for providing access to partners resources” (p. 114). The resources 25 needed may not only be natural or physical resources, but can also be human capital: “network seems more important for the transfer of organizational and human capital than it was for psychical or financial resource flows” (Nicole E Coviello & Cox, 2006, p. 125). 1.3. Clusters and Internationalization Being a cluster member and initiating an internationalization process may be separate strategies, but when used together they can add greater value and create more opportunities to grow and to expand abroad. “After local clustering, taking place between actors located in one region, it is time to create cooperative relations on a supra-regional and transnational networks, and establish cross-border clusters” (Kowalski, 2014, p. 183). As mentioned in section 1.1, networks and cooperation are important elements of a cluster and a channel to get more resources and access to knowledge. However, the internationalization of companies is another step that has to be taken in order to expand businesses abroad, have contact with other companies, develop new partnerships and access to valuable resources that are not available in neighboring clusters. In this section these strategies will be explored and illustrated in more detail. 1.3.1. Clustered firm’s network The network model applied to the international context explains how firms can have access and become integrated in external networks. This can also be applied to a cluster context, where clusters’ dynamics promote connection between firms and external networks through existing local/clusters networks. In order to learn more about cluster dynamics, Karlsen & Nordhus (2011) developed an empirical study based on interviews with top managers and direct observation of SMEs located in the NCE Subsea regional cluster in Western Norway. They selected four companies that were part of the cluster since its foundation: two smaller firms with limited international experience (X and Y), representative of small cluster firms in terms of internationalization; and two medium-sized firms that were internationalized (Z and 26 W) firstly as “early starters”, but then became “international among others” as they made joint ventures and owned offices and production units abroad. Firms X and Y were “Late Starters” with limited international experience and internationalization was taken gradually. In their internationalization process, the network had an extremely important role, given that it encouraged firms to initiate this process and gave them support by providing information about foreign markets. Through their network, they knew which firms were already operating aboard, making it easier to find the best partners. They found that “Late Starter” firms rely on local/regional networks and the internationalization process is also driven by references from previous customers. When firms Z and W became “International Among Others”, they used the existing network not to initiate the internationalization process, but to go further aboard. They already had good positions in the local cluster, but the external network was most important to develop the international activity. Their accumulated experience and resources also enabled them to enter new markets. From this study other relevant findings appear: a strong motive to internationalize is the external demand from customers located outside the cluster; network positions give opportunities to enter other networks and markets; global network’ flagships have an important role because if less internationalized firms work with more experienced firms, they may be able to skip steps of the internationalization process. This empirical study stresses the appropriateness and importance of network theory, the relevance of local and global networks and network positions, and the role of clusters’ dynamics in the internationalization process of clustered firms. 1.3.2. Role of leading firms in initiating cluster internationalization As described in the previous section, the network has an essential role in starting and developing international activities. It is believed that some companies have a more determinant and influent role, leading other companies to start to internationalized. Rocha, Pereira & Monteiro (2007), aiming to “understand the process by which firms in a cluster start to export based on systemic interactions” (p. 1) and the diffusion process of exports, studied Brazilian furniture manufacturing clusters. From the furniture cluster, the firm Zipperer Industries was as a first mover in exports and had a determinant role in the whole cluster, as described as follows. When the company 33 1.4. A synthesis of the literature review Currently there is a huge diversity of studies and theories that separately address the themes of internationalization and clusters. These issues have been researched by different authors from diverse perspectives, contributing to the enrichment and general understanding of the topic. The influence of the cluster in the internationalization process of companies is a topic that has captured the attention of some researchers (Karlsen & Nordhus, 2011; Zen et al., 2011; Zyglidopoulos et al., 2006), but the number of studies focused on this perspective is limited. Figure 1 shows a synthesis of the most important topics that have been investigated and discussed in the literature. Figure 1: Synthesis of the literature review Source: Own elaboration. 34 The existing theories or models that describe internationalization processes that can be pursued by companies are the following: Uppsala Internationalization Model (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975); Born Global (Gabrielsson & Kirpalani, 2004; Rennie, 1993); International New Ventures (Nicole E. Coviello, 2006; Oviatt & McDougall, 1995, 2005). A more careful analysis of these theories allows us to conclude that there are only three different pathways: a company that has a strategy focused exclusively on the domestic market (pure domestic); a firm that develops a gradual internationalization strategy as described in the Uppsala model or, alternatively, a company with an accelerated strategy of internationalization, corresponding to a born global or international new venture. The relevant literature available about clusters is focused on the potential of the external environment. Clusters are described as an environment where different types of players are present, such as companies, research or governmental organisms (Porter, 1998), and are linked by a common goal or cause. The companies that form a cluster have mutually related business (Langen, 2002) and are characterized by a high potential to entrepreneurship (Delgado et al., 2010) driven by the culture of cooperation and a huge propensity for innovation (Engel & del-Palacio, 2009). The network is a key factor in a cluster. Through the network experiences are shared, knowledge spillovers occur and partnerships are established (Iammarino & McCann, 2006; Maskell, 2001). Within a cluster there is a group of relevant actors and a concentration of specialists in various fields of knowledge that together have more power than when acting individually. Addressing the cluster theme, but with a focus on the context of internationalization of companies, some authors came up with the conclusion of how the cluster can stimulate and give support to its members. As mentioned previously, within a cluster there is a huge variety of actors and each one has its own network. When all the actors that integrate the cluster get in touch and share their contacts, the clusters’ network gets a huge dimension and potential, which can help them in the internationalization process (zu Köcker et al., 2011). Through the clusters’ network, it became easier to find the best partners or to get information about foreign markets, which are obstacles faced during the internationalization process that can be overcome or minimized with cooperation strategies (Karlsen & Nordhus, 2011). 35 Within a cluster it is possible to find companies that are crossing different stages of internationalization. The cooperation promoted between the more experienced and the less experienced companies, enables the less experienced company to skip steps in the internationalization process (Karlsen & Nordhus, 2011). This cooperation can be also expressed when development agreements take place with the aim of sharing resources or crreating new products, contributing to strengthen the competitive advantage in international markets (Zen et al., 2011). In order to do market research, develop contacts in foreign markets and to exhibit the product range, a common strategy is to participate in international fairs. The research by Zen et al. (2011) concluded that clusters enable firms to have access to fairs with lower costs. Furthermore, a study about the impact of clusters reputation in internationalization indicates that a good reputation helps a firm to get easier access to financial funds necessary to support the internationalization process and is also important to attract specialized human resources (Zyglidopoulos et al., 2006). Internationalization and clusters are themes that at first sight may not to match. However, the combination of both has been proven to have a magnifying effect on the ability of the company to establish itself in the international markets. 1.4.1. Framework The internationalization process of a clustered company results from a complementary relation between the internal conditions of the company and the resources and services that the cluster can provide. Considering the potential of clusters in the internationalization process and the type of process (gradual or accelerated), a framework was developed based on the literature review contributions from clusters and from internationalization. The aim of the framework is to have an overview of how a cluster in different scenarios can give support and make the difference in each internationalization process. The support that the company may draw from the cluster will depend on: how evolved is the process of internationalization (if it is starting or if the company is already in a more advanced stage of involvement) and the type of pathway taken (gradual or accelerated). 36 Domestic Market • Clusters' labor market pooling: - find specialist human resources in international markets; - training and education programs; Sporadic Exports • Share experiences with more experienced firms Regular Exports • Through clusters' network get the contact of local representatives • Participate in international markets fairs Sales Subsidiary • Easier access to financial funds • Training courses Manufacturing Subsidiary • Help to find the best partners  Hypothesis 1: The Company adopted a gradual internationalization process. As shown in the figure below, this first hypothesis corresponds to the Uppsala model (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975) consisting of a gradual internationalization process with the following phases: establishment in domestic market, beginning of internationalization with exports, setting up of a sales subsidiary and, if applicable, setting up a manufacturing subsidiary. Figure 2: Influence of the cluster in a gradual process of internationalization Stage 0 Stage 1 Stage 2 Stage 3 Stage 4 Source: Own elaboration, inspired in an integration of relevant conceptual literature. The internationalization process model posits a higher commitment with international markets as the knowledge about the market and available resources increases. Firstly, the firm establishes activity in the domestic market (stage 0) and then starts with sporadic or non-regular export activities (stage 1). In this initial phase, between stage 0 and stage 1, the company can benefit from the cluster resources: access to labor market pooling where the company may find specialist human resources in international 37 markets, get access to training and education programs with lower cost (Langen, 2002; Zen et al., 2011). In stage 1, when the company starts sporadic exports, it lacks a channel of regular information, which makes the access to information a major obstacle. In this situation, through the cluster network it becomes easier to find a person with experience in that market that can provide information and give advice. At this initial stage, to share experiences with more experienced companies is very important to define the company’s strategy and to identify potential target markets (Karlsen & Nordhus, 2011). Three sub phases can be distinguished during the export phase: 1. beginning of exports activity with occasional exports; 2. establishing and consolidating exports activity; 3. regular and established exporting activity. This process could take more time if the company does not have the support of the cluster. In order to skip to regular exports (stage 3), the company can through the cluster network get in touch with external agent such as local representatives and get general information about the market, receive recommendations on the necessary adaptations to make sure the product fits the market or receive support in legal aspects (Rocha et al., 2007). After deciding which are the target markets, it is important for the company to be present in international fairs. The company can do it through the cluster at a lower cost (Zen et al., 2011). A higher commitment of resources and involvement with the international markets is required when the firm establishes a sales subsidiary (stage 3) and the effort is even higher with the foundation of a manufacturing subsidiary (stage 4) (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975). In these stages belonging to a cluster can make a difference and support the company. As a consequence of the good reputation of the cluster, the company can get easier access to funds that are needed to start these operations (Zyglidopoulos et al., 2006). Moreover, through the cluster’s labor market pool, the firm can get training courses to 38 be prepared to go to foreign markets or to recruit the human resources needed (Porter, 1998). Furthermore, the cluster’s network makes it easier to find the best partners in foreign markets (Karlsen & Nordhus, 2011). This internationalization process is taken gradually by the company because of the lack of resources and information about international markets. As demonstrated, the cluster can have a very positive influence and help accelerate this process.  Hypothesis 2: The Company adopted an accelerated internationalization process. The accelerated internationalization process is characterized by a quick presence in the foreign markets since the firm’s foundation (Oviatt & McDougall, 2005) or without being a long period in the domestic market (Rennie, 1993). This rapid internationalization can occur due to the international experience of founders or managers that already have a global vision and strong international business network (Oviatt & McDougall, 1995). Their strategy is mainly focused on distribution channels that depend on close relationships or network partners (Gabrielsson & Kirpalani, 2004) One of the main assets of the cluster is its network, but these companies already have a good network resulting from the accumulated experience of their founders. However, the founder may have experience in international markets, but not in that specific industry. Since within the cluster there are firms from related businesses, they could help to increase the existing network and share the international experience from that industry (Maskell, 2001). Clustered companies could cooperate by sharing information about the distribution channels operating in each market or identification of partners from whom they have good references. Companies with accelerated processes usually have limited resources, but make a huge commitment with various nations very early (Oviatt & McDougall, 2005). In the beginning of the process, the company may still need some resources that can be provided by the cluster: help to recruit specialists to join their team and to access funds (Zyglidopoulos et al., 2006). Even though the company already has several contacts and experience, the cluster can help to supplement the existing information and thereby assisting the internationalization. 39 Exports (eventually contratual modes or FDI) • Influence: - Increase the existing network; - Share international experience from the industry; - Provide information about distribution channels; - Identification of partners; - Recruit specialist; - Access to financial funds; - Cooperation agreements to develop R&D. Companies with accelerated processes make significant investments in innovation, creating innovative products and services and taking advantage of new communication technologies to be in touch with their partners or clients (Oviatt & McDougall, 1995). A cluster represents a favorable environment for entrepreneurship and an important contribution that the cluster can give these companies is in R&D through the establishment of cooperation agreements between member companies and institutions (Zen et al., 2011). Being a member of the cluster, the company is not just limited to internal resources, but it also has access to cluster’s resources (Molina-Morales, 2001). Figure 3: Influence of the cluster in an accelerated process of internationalization Source: Own elaboration, inspired in an integration of relevant conceptual literature. Depending on the profile of the company and its needs, a cluster has various tools available to intervene. In hypothesis 1, where the company has a gradual internationalization process, the main contribution of the cluster could be in extending the network to a global network, in order to overcome the lack of experience in international markets and help accessing resources. In hypothesis 2, accelerated internationalization process, the actions taken by the cluster will be more directed to exchange of knowledge, e.g. information about trends or distribution channels. Despite the firm has already some experience in international markets and a good network, it has limited resources and the cluster members can provide access to resources. 40 Chapter 2. An Empirical Study on the Influence of Clusters on Firms’ Internationalization: The Case of Portugal Foods This chapter includes the empirical part of this dissertation. It starts with a section about methodology, including explanations about the criteria for selection of the cluster and the companies that comprise the sample used in this research. In the following section, case studies are presented as a result of the data collected and are followed by individual and comparative analyses, where patterns of behavior are extracted. The chapter ends with an analysis of the results that are contrasted with the relevant theoretical and empirical literature and with the framework developed. 2.1. Methodology This subchapter is focused on the methodology that was chosen according to the research question and the objectives established. Having in mind that the main goal of this investigation is to understand to what extent and how has the cluster influenced the process of internationalization of the associated companies, the methodology applied was qualitative through the case studies method and data collection was made through in-depth interviews to the selected companies. The qualitative methodology was deemed the most appropriate to analyze this interactive and dynamic phenomenon that occurs between the companies and the cluster. Qualitative methodologies are used to analyze social phenomena, aiming to understand the behavior of people and organizations. It is a descriptive and inductive investigation in which the researcher develops ideas from patterns found from documents, interviews and observation (Sousa & Baptista, 2011, p. 56). Aiming to define a qualitative research, Cassell & Symon (1994) highlighted the following characteristics: “a focus on interpretation rather than quantification; an emphasis on subjectivity rather than objectivity; flexibility in the process of conducting research; an orientation towards process rather than outcome; a concern with context - regarding behavior and situation as inextricably linked in forming experience; and finally, an 41 explicit recognition of the impact of the research process on the research situation" (p. 7). Considering the purpose of the investigation and within the qualitative methodology, the method chosen was cases studies that are widely used in organizational studies and across the social sciences and it is a method that is increasingly being chosen with a growing confidence as a rigorous research strategy (Kohlbacher, 2006). This is a research method used to investigate in depth a contemporary phenomenon in a real-life context for instance an individual, a group, social or political phenomena. In economics and management this is a common method when a structure of an industry, economy of a city or region is being studied, or even a small group behavior or international relations, allowing the researcher to retain the holistic and meaningful characteristics of real-life events (Yin, 2009). For this research, according to thoroughly criteria, a sample of clustered firms was selected (section 2.1.3) and their process of internationalization and interaction with the cluster is deeply analyzed. Within the case study method there are two approaches: single- and multiplecase studies. Since each selected company represents a different reality and path, this dissertation’s design includes multiple-case studies, and implements a comparative case method – which is a model increasingly used in recent years (Yin, 2009). In multiple case studies, conclusions are obtained through analytic generalization: “previously developed theory is used as a template with which to compare the empirical results of the case study” (Yin, 2009, p. 38). Furthermore, “the evidence from multiple cases is often considered more compelling, and the overall study is therefore regarded as being more robust (Yin, 2009, p. 53) Among the various research methods there are exploratory case studies, descriptive case studies, or explanatory case studies. The exploratory case studies was the chosen research method and it is consistent with the preposition of Yin (2009) according to which the formulation of the research question will determine what type of methodology the researcher should use: “how and why questions are more explanatory and likely to lead to the use of case studies, histories, and experiments as the preferred research methods. This is because such questions deal with operational links needing to be traced over time, rather than mere frequencies or incidence” (Yin, 2009, p. 9). 48 2. Developing exports activity; 3. Consolidated exports; 4. Exporting companies with FDI. The 3 first groups are companies focused only on exporting activity while the last group has export activity but had already expanded abroad through joint-ventures (JV) and / or wholly-owned subsidiaries. Grouping companies following the internationalization process criteria allow verifying: if the interaction with the cluster changes according to the degree of internationalization; if the cluster has the ability to adapt its mechanisms according to company stage and path of internationalization. 2.1.4. Data gathering procedures After defining the research sample, the leadership of PortugalFoods provided contact information of the most appropriate person in each company to be interviewed. PortugalFoods sent an initial email to the selected companies to present the research project and to request their collaboration in the project. Some associates immediately agreed to participate in the research and interviews were scheduled. In other cases a second email was sent to acknowledge receipt of the first email and to give some more information about the project. Lastly some contacts were established by telephone to schedule interviews. The interviews took place during the months of June and July of 2014. The majority interviews were developed face to face with company founders, directors and export managers in the companies’ headquarters and some were performed through Skype due to the geographic distance. The interviews took between 50 minutes and 2h30 and were conducted as follows and according to the procedures suggested by Sousa & Baptista (2011, p. 84): 1. Thank willingness to collaborate in research; 2. Explain the scope and purpose of the investigation; 3. Explain how the interview will be organized; 49 4. Ensure the confidentiality of information shared in the interview, explaining that to process the data of the interview for each company a letter will be assigned; 5. The interview followed the order of the interview guidelines, but at first the questions were exposed like open questions, to understand the reasons / causes more immediate, and then were classified according to the Likert scale; 6. In the end of the interview, the interviewee was asked if there was anything else to add besides the topics discussed before; 7. Finally, the interviewer made an overall summary of the route of internationalization and global influence of PortugalFoods to make sure that the information was correct and there was nothing else left to add. 2.1.5. Sample Based on the mentioned criteria of selection, the initial sample had 19 firms associated to PortugalFoods that were divided in 4 groups as shown in the table below. Table 3: Initial sample divided by groups Groups Number of selected companies I - Taking the first steps in exports 4 II - Developing exports activity 3 III - Consolidated exports 7 IV - Exporting companies with FDI 5 Total 19 Source: Own elaboration. However, 5 of the 19 selected companies did not reply to the request. Under the scope of this dissertation, from 62 PortugalFoods associated companies, 14 interviews were conducted successfully with the company founders, directors and export managers, corresponding to a sample of 18% of the associated firms (14 out of 78). The table below shows the distribution by groups of the companies interviewed. 50 Table 4: Companies interviewed divided by groups Groups Number of interviewed companies I - Taking the first steps in exports 2 II - Developing exports activity 3 III - Consolidated exports 5 IV - Exporting companies with FDI 4 Total 14 Source: Own elaboration. In the next section a description of each case study will be made, followed by an analysis between groups and a general analysis. 2.2. Empirical results and analysis This subchapter addresses the internationalization process and the influence of PortugalFoods on the selected firms. The first section describes the selected case studies, highlighting the main aspects that characterize and distinguish each internationalization process and the interaction with PortugalFoods. Then, an individual analysis of the 4 selected groups will be undertaken, characterizing each one, followed by a comparison between groups to establish patterns of internationalization and interaction with the cluster and its members. The subchapter will end with an overall analysis of the selected firms highlighting the main aspects that characterize the whole group. 2.2.1. Individual analysis – Description of the selected cases studies In this section, based only on information that was shared during the interviews, the case studies will be presented. The main aspects highlighted during the interviews will be described in each case study, aiming to understand: why and how each internationalization process take place; how has the interaction of the company with PortugalFoods and with other associates been. 51 Due to issues of confidentiality agreed with companies’ representatives, not all information will be disclosed. To each company was assigned a fictitious name, represented by a character, omitting the real name. Given that the cluster represents the agrofood sector and that all interviewed companies belong to this cluster and sector, the products produced by each company will not be mentioned. Moreover, the markets where companies have operations will not be revealed in detail. All these issues of confidentiality were assured during interviews. 1. Company A Company A is one of the youngest companies in PortugalFoods. Founded in 2013, it is a successful micro company that already has its products in the major Portuguese retail chains and, in the same year, started to export to 3 markets (2 in Europe and 1 in Africa). In 2013 exports represented 15% of the sales volume. The founders did not have any experience in the sector or contacts in the industry. In order to analyze the viability and develop a business plan, they contacted economists, marketers and people from the health sector. Additionally, a close cooperation was developed with 2 Portuguese universities: one to help with the marketing and market research plan and the other to work on the product’s R&D. During the market research, one potential market in Africa was identified, as well as 3 distribution partners and in Europe 2 markets were identified where contacts were established with distributors and partners. The company defined the following internationalization strategy: first, identified the main target markets; second, developed a marketing and communication plan for each one; finally, depending on the market, to export with or without intermediaries. Another strategy is to participate in international fairs, as it helps to identify potential clients and to test the products to understand what the required adaptations are. So far, the company participated in 3 fairs with its own brand and 1 with PortugalFoods. In this first year the firm faced some barriers to internationalize: lack of information about international markets; lack of control of distribution channels and the large 52 quantities of product required by distribution chains; legal and bureaucratic aspects like trade barriers. Still in the year 2013, the company joined PortugalFoods aiming to have access to knowledge and to a network. PortugalFoods has a team of specialized human resources that helped the firm overcome its main internationalization obstacles, providing information about foreign markets, sharing relevant contacts, organizing international fairs and dealing with the bureaucracy to access government funds to finance fairs. Company A is an active member of PortugalFoods having already participated with them in 1 trade fair and 1 business mission. Cooperation with other members to share information and experiences in an informal way is important for the company. According to Company A, PortugalFoods is an essential partner that has provided a great support in starting the business and enter in foreign markets, and moreover makes easier the projection of the brand. 2. Company B In 2011 company B was found with the purpose of promoting Portuguese products abroad, thereby helping to strengthen the image of Portugal. The defined target export markets were the PALOP (Portuguese-Speaking African Countries) and the markets where Portuguese immigrants are (“Mercado da Saudade”). The desire to create the company arose on the one hand because of the founder’s foreign nationality and also because of the experience in working with exports although in a different industry. The firm was born totally focused on exports to foreign markets and only works with the national market in the Christmas period to flow some production. Currently the firm is working with 3 European countries. The experience of the founder in exporting to some foreign markets, though not in this industry, influenced the choice of the first target markets. On the other hand, a priority was to lie alongside important competitors by positioning Portuguese products next to products from other countries. The export model depends on the market: may be exports through distributors or direct export, e.g. through internet channels. 53 The funding sources mostly used by this micro company were equity and bank financing. According to the founder, belonging to PortugalFoods was indifferent to gain access to bank financing. About financial resources the founder adds that the governmental system of incentives is very slow and did not get any, what was a major difficulty. When asked about other obstacles to internationalization, the founder noted the following: strong competition in target markets; control of distribution channels and short shelf life of its products. Moreover the founder considers that Portugal lacks an uniform and solid identity, which was somehow a difficulty. Still, the founder highlighted the notorious effort made by PortugalFoods in representing the country abroad. Due to the necessity to bring the Portuguese companies to cooperate and build a solid image of Portugal, after 2 years of the company’s foundation they became a member of PortugalFoods. Becoming a cluster member the company was expecting: to get support to company grow up in order to meet the demand; to have access to information and contacts of other markets as well as participate in fairs. An important strategy of the firm's internationalization involves participation in fairs: if the fair is in Europe the company goes alone or with PortugalFoods since it fits the business plan; if it is outside the Europe participates only with PortugalFoods. In addition to fairs, company B had a great interaction with PortugalFoods participating in the organized workshops. Moreover the founder appreciates the cooperation between firms and cooperates with a competitor, also a PortugalFoods member. The shipping of products through shared distributors is another reason mentioned to cooperate with other firms. So far the company worked more with PortugalFoods in the internationalization area than in R&D. The cluster has been a key partner in supporting and providing stimulus to internationalization through: organization of international fairs, customer identification, identification of trends and positioning the products in each market, access to strategic partners and international consolidation of the company's image. 54 3. Company C Founded 23 years ago, company C is an SME with a family tradition in producing old culinary recipes. Most of its history was dedicated to the domestic market, with products under its own brand and distributors’ brand. However, 2 years ago the company started to export under its own brand with high intensity. The first export was 10 years ago to the USA, but the ‘serious’ beginning of the internationalization process happened in 2012 with a participation in an international fair. The process was motivated by an increase of production capacity due to a construction of a new facility and also by the crisis in Portugal. Developed through importers and distributors, the exports in 2013 represented 9% of company sales volume and were held to 7 markets: 2 in Europe and the other in Asia, Africa and USA. The size and potential of the market influenced the choice of target markets and the cluster had also some influence due to company participation in various initiatives as described below. As a result of applying for a financial incentive to support internationalization, the company had defined the following strategy: prospection of markets to assess the potential of the products (conducted with help of a Portuguese entity and internal resources); participation in fairs and in business missions to prospect a local market in Asia; presentation of products to importers (action organized by PortugalFoods). It is being also considered the hypothesis of having a local representative in each market, which would be a partnership with other members of PortugalFoods, aiming to split costs. The internationalization plan is financed mainly through equity and partly through incentives, in which case the PortugalFoods did not have any influence. Although there is also lack of knowledge about foreign markets, the main obstacles highlighted were: language differences in Asia; high shipping cost; difficulty to control the distribution channels, since the company does not know exactly where the products are placed; very specific demands orders which require product adaptations and, since the product is totally new in international markets, is necessary to introduce consumption habits. Customers and importers have an important role to overcome legal and bureaucratic obstacles by sharing periodically updated information. 55 In 2011, one year before the beginning of internationalization, the company joined PortugalFoods by indication of a founder member of the cluster. The enthusiasm for a project of dissemination of Portuguese products proposed by PortugalFoods and the opportunity for joint R&D led the association. In order to share knowledge and experiences, the company cooperates with other associated firms, one being direct competitor. There has been a strong interaction between company C and PortugalFoods. In the internationalization process, the main influence came from joint participation in fairs, business missions and successful presentation of products to importers or distributors. According to company C, "PortugalFoods has a strategy that has been adapted. It has a team of excellent professionals and has an important role in the dissemination of Portuguese products”. 4. Company D: Though not having experience in the sector, the founder of company D decided, 11 years ago, to produce the raw material that used to be imported by Portuguese producers. The three mandatory conditions to create the company were: internationalization though exports, innovation and adaptation. After 2 years from the foundation, the company started to export to industrial customers identified by the company and later began to export through distributors, which in turn helped identify new customers. In 2013 the company exported to 7 markets (3 in Europe, 3 in Africa and 1 in Asia) and exports represented 45% of the sales volume, which confirms that the company is export oriented. The cluster did not have any influence in the choice of the markets but territorial proximity and market potential were identified as the decisive factors. The major obstacles faced in the beginning were lack of information and contacts on foreign markets, since the founder did not have experienced in the markets, and strong competition in the target market. Mainly to develop joint R&D and also in order to have some support in internationalization, after 3 years of starting to export, the company became a 56 PortugalFoods member. Despite having its own team dedicated to R&D, the company also has partnerships with several Portuguese universities and has key partners within PortugalFoods. Concerning internationalization, annually the firm participates in 1 or 2 fairs organized by the cluster, which is the activity that has more influence on internationalization. The firm has also participated in inverse missions and seminars to share experiences. Access to a network and sharing information in order to identify new customers are the reasons mentioned to cooperate with other members. Although it was not a goal when the company joined the cluster, access to financial funds under the influence of PortugalFoods exceeded the expectations. As a final comment, the founder highlighted that, in what concerns internationalization, despite fairs, did not have huge interaction with PortugalFoods but considered the cluster essential to represent the industry. 5. Company E Company E is a subsidiary of a multinational (MNE) and is present in Portugal for 14 years. Currently company E is a big size company with 600 employees and in 2013 the turnover was 118 million euros. The company represents the international brands of the group and has its national brands that started to export in 2009. The company's priority was always the domestic market. Even if it had started to export sporadically, due to a crisis of raw materials, the firm suspended exports to ensure the supply in the domestic market. In 2009 the firm started to export regularly retaking contacts it had from the first export experience. The internationalization process restarted in order to access markets with growth potential, reduce dependence on the domestic market and also to follow competitors. In 2013 exports represented 29% of the sales volume and exported to 15 countries, being the main markets: PALOP, “Mercado da Saudade”, Angola and France. Despite having as a priority the domestic market, at the moment the international strategy is the consolidation of markets in which they are already established and not to conquer more markets. 57 The distribution model is adapted to each market: in large markets is through supermarket chains and direct exports to big clients; in markets with smaller clients, the main distributors are identified; can be also through retailers and traders. Furthermore, company E is an exclusive supplier of a foreign firm, producing the entire product that is sold by the client in that foreign market under the client’s brand name. The main obstacles to internationalization were: lack of international contacts even if the firm had contacts from the first occasional exports; cultural and linguistic differences; strong competition in the target markets and control of distribution channels. The company joined PortugalFoods in 2013, three years after starting the process of internationalization, but the interaction between them has been reduced so far. The main motivation to join PortugalFoods was to participate in fairs and get support when needed. Despite not having yet the opportunity to participate in any initiative, PortugalFoods already helped the company by sharing information on foreign markets and provided a contact of an important client. In what concerns partnerships, the company has logistic synergies by sharing containers with partners from PortugalFoods. The R&D activity is mostly ensured by their own R&D department or in partnership with the MNE, so there is no cooperation with other companies from the cluster. The excellent work of PortugalFoods is recognized by the company but it had so far no opportunity to take advantage of its potential. However, there is a strong interest in interacting more with PortugalFoods in the future. 6. Company F: Founded 19 years ago, company F is an exporting SME and a family business. Started exporting 2 years after foundation and in 2013 exports represented 20% of the sales volume and was selling for 30 countries (10 of which in the EU). In some markets the firm has local representatives and distribution partners which are present in more than one country. In 17 years the company built a consistent presence in foreign markets. 64 Despite having participated in trade fairs and inverse missions, the firm’s representative considers that "PortugalFoods had no decisive influence because the process of internationalization was already established". Yet adds that PortugalFoods "eventually assisted in the process in terms of funding, access information, organization of fairs and in innovation are taking the first steps together". 11. Company K Company K is a SME with 32 years and a curious path of internationalization: began to establish in the domestic market, opening a production unit; in 2004 set up the first subsidiary abroad and just then started to export. Internationalized for 10 years, operates in 4 markets (3 in Europe) and in 2013 exports were 7% of the sales volume. The internationalization process was motivated by domestic market conditions, which was starting to face a crisis and had an unfavorable tax system, leading to an increased need to access markets with growth potential. The network was determinant to start internationalizing, as the firm has received orders from abroad to provide catering services. The firm considered that a good business opportunity and created a subsidiary in a foreign market, where it produced the products and provided them to the customer. For this, the company had to recruit qualified workers and the raw material was imported from the manufacturing unit in Portugal or, when necessary, used local raw materials. This business model started with a client in Europe but then emerged another client in Africa. However, currently the activity in these subsidiaries is suspended for lack of customers' orders. To set up the subsidiary, the firm faced some difficulties: find local suppliers; logistical difficulties and access to financial resources. The network was also important to start exporting. A Portuguese customer went to Africa and began to import the product. Although in some countries the competition was high, according to the company’ representative, PortugalFoods was crucial, giving indications whether or not should adapt products to local markets. Another obstacle was to control the distribution channels and the inflexibility of large distributors that required high product quantities. The third mentioned obstacle was the "very bad image of Portugal in this sector in terms of hygiene which is not true". 65 With the aim of getting help to discover the potential of products in each market, in 2012 the firm became a member of PortugalFoods. One of the markets where the company is present, was motivated by the cluster that put them in contact with a customer. According to the firm’s administrator the support provided by the cluster exceeded expectations: "if we had a problem and PortugalFoods doesn´t know how to help, they always knew someone who can help us". However, regarding the help to get bank financing, the feedback is not so positive considering that the cluster does not give any support. The interviewee argues that the firm does not develop joint R&D with PortugalFoods due to geographical distance. They never participated in fairs with Portugal Foods. With the goal of raising new clients, the firm participates alone or with other Portuguese entities, and does not always attend to the same fairs. From the activities organized by PortugalFoods, the firm participated in inverse missions and highlighted the "HUB": in-person meetings with direct competitors with the aim of figure out how they can cooperate. Although company K does not cooperate with any competitor who is a member of PortugalFoods, they already cooperate with one that is external to the cluster. The influence of PortugalFoods in the internationalization process is positive: encourages internationalization; helps to choose target markets; provides contacts of potential partners; helps in the international consolidation of the company's image. However, according to the representative of the company "the interaction with PortugalFoods could be higher if the physical distance was smaller". 12. Company L Company L is one of the largest members of Portugal Foods. In 2013 the firm had 900 employees and a turnover of 200 million euros. Founded 53 years ago, the company has a well-known brand in Portugal. First settled in the domestic market and then internationalized through exports, JV and by acquisition. In the beginning, the firm was focused on the domestic market where it opened and expanded the 2 production units and then, started to work with distribution channels. In 66 1990 the process of internationalization started with exports carried out via international distribution channels. The following steps in internationalization were: acquisition of a foreign company in Europe and a 50-50 JV with the only existing firm in this sector in Africa. In 2013 the exports represented 30% of total sales and to more than 30 markets. The two subsidiaries abroad represented 25% of the turnover. The strategy for exports was: identification of the target markets and continuous prospection; pre-selection of identified markets; definition of an adapted strategy to each market. The firm has a team that makes market prospection through fairs and trips in which local partners (distribution and brand representatives) are identified to accelerate the results. The contact may be established directly with the client or in more complex markets through partners and, if necessary, the firm may have more than one partner in each market. Local partners provide information on trends and other relevant information. The internationalization process was initiated because they need to be in markets with growth potential in which the product is more valued and pay more for the product, seek for natural resources and technology assets. Linguistic and cultural proximity were the main determinants to define export target markets. To the establishment of units aboard, territorial proximity was key, as well as the size of the market and the existing contact or a partner. PortugalFoods had influence in the choice of export target markets but did not have in the set up of foreign units. The main barriers to internationalization were: strong competition in target markets; to control the channels; legal aspects and the inexistence of public incentives since it is considered a large company. Joint R&D was the main objective that led the firm to become a member of PortugalFoods in 2011. The company had already participated in various events organized by the cluster; a conference on innovation and joint R&D were the activities highlighted by the interviewee. Diverse partners within the cluster were identified: firms with complementary and even competing activities; customers; suppliers and universities. The reasons to cooperate 67 that the administrator pointed out were: sharing costs through commercial and logistic synergies and economies of scale that give greater bargaining power. According to the interviewee: "PortugalFoods had not a decisive influence because we had already started the process of internationalization. For instance the company exports to markets with whom PortugalFoods still not working and thus we act more in the B2B market. PortugalFoods helps with markets in which we are not present. However we are not structured to take advantage of internationalization". 13. Company M: Company M was founded 95 years ago and is a large and well-known company in Portugal, with a turnover of 200 million euros and 650 employees in 2013. After consolidating the domestic market, 20 years ago the firm started to export and made a minority JV. Currently it is present in 38 markets (5 in Europe) and exports were 12% of the sales volume in 2013. The firm started to internationalize through sporadic exports due to requests from foreign customers. Later, exports became more regular and made through distributors. The existence of a partner’s contact, territorial and cultural proximity were all factors that influenced the choice of export markets. The same factors were noted for the choice of the market where they made the JV. The partial (25%) acquisition of a factory located in Europe aimed to supply nearby markets. During the internationalization process, the main obstacles were: strong competition in the target market; lack of human resources with international experience and knowledge gaps on external markets. The informal exchange of information with the network helped overcome these obstacles. The administrator gave a great importance to personal relations and direct contact with partners or customers. If the company visits a partner, it has a very positive impact since this effort is highly valued and in the future it can make a difference in a business. In 2010 the firm became a member of PortugalFoods with the main objective of joint R&D. Since 2012 the firm has an autonomous department but the cluster provides 68 information about innovation trends. No partner was identified among the members of PortugalFoods. Participation in fairs is one internationalization strategy: attend several fairs in Europe (attracting people from all over the world) but outside Europe a pre-selection is needed. The firm participated under its own brand or jointly with PortugalFoods or other national entities. This strategy aims to: make the first approach to the market; get feedback from potential customers to assess whether the product portfolio is appropriate to the market and identify opportunities for new product launches. The administrator highlighted that if several members from PortugalFoods participate together, a larger stand is required and the negotiating power of the cluster is greater, getting a better location in the fair. According to the administrator “the lack of local informants with specific market information is partially overcome by PortugalFoods who has a great knowledge of the market / sector and has an innovative approach”. PortugalFoods helped in the process of internationalization through sharing some contacts of strategic partners and the participation in fairs helped to consolidate the international image of the company. 14. Company N: Company N was founded 27 years ago and has a developed internationalization process with various entry modes: exports, acquisitions and JV. It is a large firm that in 2013 had a turnover of 105 million euros and exported to 20 markets (6 in Europe) and had 4 units abroad. After 3 years of foundation and establishment in domestic market, the firm started to internationalize expecting to find markets with potential and where margins were high. First, the firm started to export to Europe and then set up various subsidiaries and JV. However, the firm was not always successful, forcing successive changes in strategy. Over the 24 years of internationalization the firm set up 3 JV: the first was not successful due to inexperience; the second was initially majority but due to cultural problems was also not successful; the last JV was with a competitor and remains active. 69 According to the company representative the main reasons for the failure of the JV were: cultural and legal differences; loss of power when the JV went from majority to minority or 50-50. Regarding the various foreign subsidiaries: the first was a greenfield investment but due to legal issues was closed; the second subsidiary is still active and resulted from a greenfield investment only with the purchase of the existing infrastructure, and aimed to serve the local market and export from the subsidiary; the third subsidiary is a greenfield investment in the US. In the beginning of the process, after gaining experience in other markets, the company entered in a large European market through direct exports, having first hired for that local human resources and make a market prospection conducted with internal resources to identify the major brands. Later, also in this market, the company acquired a small but historic player that helped the company to enter in the market. In addition to the previously mentioned obstacles, the representative of the firm also noted: opportunistic or disloyal behavior of the partners; difficulties in the development of organizational structure due to cultural problems; the lack of good information about foreign markets as the information received does not always correspond to the truth. Aiming to contribute to the implementation of a national strategy of cooperation, the firm became a member of PortugalFoods in 2008. There is a strategy to attend international fairs: in the old markets the company goes under its own brand; in new markets the firm goes in partnership with PortugalFoods. The financing of internationalization is mostly via bank financing but the interviewee believes that the cluster did not have influence to overcome this obstacle. Despite having helped to identify new suppliers and to organize fairs, PortugalFoods did not have a decisive role in internationalization because when the firm was founded the internationalization process was already well established. The firm’s representative considers that in R&D the influence was more decisive, promoting co-promotion with universities and other firms. Moreover, the representative added that “the model of PortugalFoods is more focused on companies that are starting the business or start-ups”. As a more experienced firm, they had already contributed to the internationalization of other firms helping to identify distribution channels. 70 2.2.2. Group analysis – Characterization of each group profile As mentioned in the methodology subchapter, the selected companies were divided into 4 groups according to the internationalization criteria (Appendix B - Table A.1). This section aims to characterize each group, highlighting the aspects that distinguish them in terms of internationalization and interaction with PortugalFoods.  Group I - Taking the first steps in exports The group I is characterized by companies that engaged in international markets recently. In this group there are firms that only export and are taking the first steps in internationalization. These companies are present in a very limited number of markets and the percentage of exports in the sales volume is very low. From the selected firms, A and B are those that fit this internationalization profile. Both are micro companies that started to internationalize very recently, 1 or 3 years ago, and are taking the first steps through exports (Appendix B - Table A.1). These firms were founded with the aim of internationalizing very early to markets with grown potential (Appendix B – Figure A.1). In fact, they started to export since their foundation, which corresponds to an accelerated internationalization process (as described in chapter 1), and at the same time became members of PortugalFoods. Cultural proximity played a major goal in the choice of markets (Appendix B – Figure A.2), since they were looking for markets where the Portuguese communities are. Currently both firms are present in only 3 markets. So far, the main barriers faced are related to distribution channels, strong competition aboard and Portugal’s reputation (Appendix B – Figure A.6). When they faced these obstacles, they were already members of the cluster and got the needed support to overcome them. The representatives of group I firms did not consider knowledge on foreign markets a real obstacle, since searching on the internet or through their network they could overcome quite easily this lack of information. Entering in PortugalFoods, they were 71 expecting to get more information on international markets (Appendix B – Figure A.11). The required information was provided directly or through workshops organized by the cluster, considered by the group as the most reliable source of information, since the cluster has a strong knowledge in the industry. Although the access to information and network had not been considered obstacles, these were the reasons that motivated the integration in the cluster (Appendix B – Figure A.11), since they were starting and had not experience or even contacts in this industry. The cluster was able to provide the needed support. At this early stage joint R&D was not a goal, but the firms envisaged the possibility of having joint projects in the future (Appendix B – Figure A.11 and A. 15). So far, the firms have been more focused on starting the internationalization process. Both have participated in international fairs with the cluster (Appendix B – Figure A.15) or under their own brands. Despite taking the first steps in internationalization, they are not totally dependent on the cluster’s activity. The main financial resources used to internationalize are equity and bank loans (Appendix B – Figure A.4). Access to public incentives was not a strong goal when firms joined PortugalFoods, though these incentives would be welcome anyway. Despite the received support and encouragement to internationalize, the overall assessment firms made of the influence of PortugalFoods was, on average, lower than 3 (moderately important) (Appendix B – Figure A.16). This low influence can be explained by the recent beginning of internationalization (and foundation of companies), thus having not enough time yet to interact more with the cluster. However, group I is expects to interact more with the cluster in the future.  Group II - Developing exports activity This group represents the firms that have passed the initial stage in exports, when the effort to build the initial network and get general information on foreign markets is crucial, but have not consolidated them yet. It is a group that continues to make efforts 72 to develop exports and ensure their regularity. These firms already established contacts in various countries and export to a considerable number of markets. Company C, D and E are the companies whose path fits this group: company C recently started exporting with high intensity and is already present in 7 markets; to company D the exports represent 45% of sales volume and is present in 7 markets but stills in the process of consolidating exports; company E is a subsidiary of an MNE but as Portuguese subsidiary only began to export five years ago to 15 markets and is making an effort to consolidate each market (Appendix B – Table A.1). Despite exporting already, these firms have a profile of gradual and slower internationalization, focused first on the domestic market, except company D that can be considered as having an accelerated internationalization. The firms internationalized in order to reduce the dependence on the domestic market, seeking to have access to markets with growth potential (Appendix B – Figure A.1). Apart from the potential of the market, the other criterion was the choice markets due to cultural proximity (Appendix B – Figure A.2), as happened in group I but with less intensity. In the beginning, exports were directly to clients identified by the firms, but later, due to greater knowledge and network, most exports were developed through distributors. Overall, the group expressed greater difficulties with competitiveness in target markets and with Portugal’s reputation, but due to fairs this reputation was improved. Bureaucracy and control of distribution channels were other noted difficulties, albeit with less relevance than the first. Though information was not noted as an obstacle, PortugalFoods helped providing information on international markets (Appendix B – Figure A.7). In group II, the main source of funding is equity but incentives are relevant (Appendix B – Figure A.4). Although access to incentives was not a difficulty, or goal, the influence of PortugalFoods to get it is not unanimous: according to company C and E the cluster did not have any influence; in the case of company D it exceeded expectations. 73 Due to natural company development and in order to be competitive, R&D gains relevance in this group. Considering the motivations that led companies to enter PortugalFoods, on average, the score assigned to internationalization and R&D is the same (Appendix B – Figure A.12). Even if the firms are not taking the first steps in exports, they continue to need foreign contacts and information, but at this stage (developing exports) the contacts become more relevant to ensure partnerships. This is a group of companies that actively participates in initiatives, especially in fairs (Appendix B – Figure A.15), with the exception of Company E who has not yet participated in any activity provided by the cluster. Firms in group II became associated to PortugalFoods when they were starting to internationalize. The influence of the cluster on their internationalization process is not very high (on average is approximately 2,5 – Appendix B – Figure A.16) but stands out in encouraging internationalization and contact with strategic partners (customers, distributors).  Group III – Consolidated exports Group III represents firms that have a long tradition in exports and are present in diverse markets all over the world. These firms have a well consolidated export activity: exports are already regular and have strengthened relationships with their customers and partners. The type of firms in this group are longstanding companies with a significant size, as several years are needed to reach this position of consolidated exports. Companies F, G H, I and J are the selected companies whose internationalization pattern fits this group profile. These 5 companies are all SMEs with: 50 – 230 employees and a turnover of 7 – 31 million euros; present in 8 – 45 markets spread all over the world and exports represets between 20% and 60% of sales volume, confirming that they are export-oriented firms (Appendix B – Table A.1). From the 5 firms in this group, 3 started to internationalize since their foundation (F, I and J) and 2 companies (G and H) started later between 3 or 22 years after foundation (Appendix B – 80 and taking also in consideration what was shared during the interviews, although is not unanimous the influence in getting bank loans and not all benefited so far from incentives, PortugalFoods obtains important incentives to finance fairs. Concerning goals and benefits with the integration in PortugalFoods, no significant differences exist: on average terms, the benefits equaled the goals although in both the assigned scores were not very high (Appendix B – Figure A.10). However Group III stands out with a higher average score in benefits (Appendix B – Figure A.11), which proves a great interaction with the cluster. Group I has, on average, the lower benefit which can be explained by the short time of membership of the cluster. To analyse the barriers faced by each group, 2 analyses were developed (Appendix B – Table A.4): in analysis 1 is the average of all obstacles that are in the interview guidelines (Appendix A); analysis 2 is the average of the obstacles but excludes “difficulty in hiring human resources with the required qualifications in the destination country” and “difficulties in developing the organizational structure abroad” since they are just applicable to companies from group IV. Comparing analysis 1 with analysis 2, the average score becomes higher in the second, as these questions were classified with 0, leading to a decrease of the whole average. In both analyses, the average score is not very high in barriers and neither in the cluster’s influence. Additionally, as the internationalization process develops (analyzing from group I to group IV) the obstacles increase since the process became more complex (Appendix B – Table A.4). However, there is not a linear relationship between stage of internationalization and PortugalFoods’ influence: the development of internationalization (or increase of the obstacles) does not lead to a greater influence of the cluster. Generally, although not having too large differences, the influence of the cluster is not sufficient to help overcome the barriers. It can happen given that firms from groups II, III and IV had already started their internationalization process when the cluster was founded, so it could not help to overcome barriers. In group I, the interaction with PortugalFoods until now is low, because they are new in the cluster. Anyway groups I and III stand out with higher average score in PortugalFoods influence, and group III is the one with stronger interaction with the cluster. 81 An overall analysis of the influence of PortugalFoods in the internationalization process was made by all the interviewees considering: encouraging to internationalize; choice of countries; access to strategic partners; access to financial resources; contributed to improved performance in terms of sales increase, profits, innovation; international consolidation of company image (Appendix B – Figure A.16). On average, in all these elements, the highest influence of PortugalFoods was in group III. As shown before, even if this group had started to internationalize much before the foundation of the cluster, since they are members, they have a great interaction in terms of participation in the cluster’s initiatives (Appendix B – Figure A.15) or partnerships in R&D (Appendix B – Table A.9). Group I is the one that gave a lower score to PortugalFoods’ influence, since they became members recently, so it is early to evaluate the cluster’s influence (Appendix B – Figure A.16). 2.2.4. General analysis In the previous section, the comparisons between groups highlighted the differences mainly in terms of goals and benefits in becoming a cluster member, barriers faced and support received by the cluster, cooperation and R&D. A general analysis will be developed in this section with the aim to have an overall perspective of the 14 PortugalFoods members and their interaction. The analysis will follow the interview guidelines, starting with internationalization process and then interaction with the cluster and its members. The main findings will be compared with previous studies developed and presented in the chapter of the literature review. During the interviews there were several motives given to start the process of internationalization. Access to markets with growth potential in order to overcome the limitations of the domestic market was the most frequently mentioned reason (Appendix B – Figure A.1). Demand for resources and strategic assets were the least common noted reason, as it applies only to group IV. The reasons to internationalize are related to the criteria for the choice of markets (Appendix B – Figure A.2). Business opportunities and market dimension or potential were the main reasons. In order to obtain better conditions that the offer by the national market, companies seek large markets where margins are higher. Cultural proximity 82 was the third most important criterion in the choice of markets. Companies seek to place products within Portuguese communities. The cluster did not have a great influence on the choice of markets given that many firms already had the strategy and target markets well defined (Appendix B – Figure A.16). The criteria applied in the choice of markets, mainly linguistic and cultural criteria, is reflected in the oldest international markets, and in markets that have a greater sales volume. USA and France were the two main markets where companies made the first exports. Among the three oldest markets stand out: Angola and France; followed by Spain and England (Appendix B – Table A.2). In terms of sales volume markets which exhibit greater sales volume are: Angola, France and Spain (Appendix B – Table A.3). Angola stands out as the oldest and most representative at the same time in terms of sales volume market and followed by France and Spain. However, a direct relationship between the age of the market and sales volume cannot be established. When asked if firms resorted to some external entity to set the internationalization strategy, only 3 of the 14 companies answered yes. These firms were helped by universities in order to define the whole strategy and communication plan, personal contacts to make the business plan and by a French firm to help to enter in this market. The majority of the firms have a well-defined, clear strategy of internationalization for instance in defining the main target markets and the strategy to attend fairs. At the beginning of the internationalization process, especially in smaller firm, most companies do not have a team allocated to internationalization. However, with the development of international operations, they end up having a team allocated to internationalization. All 14 companies have one or more own brands that are present in foreign markets. However, with the exception of the group I, all companies produce for other brands. May be distributors’ brands or even other companies’ brands. It's a way to monetize existing production units and ensure sales volume. Unanimously the most mentioned obstacles were (Appendix B – Figure A.5): bureaucracy and legal aspects; strong competition in the target market in terms of price and quality; reputation of Portugal and lack of knowledge with lower score. The 83 obstacles that PortugalFoods mainly helped to overcome were the lack of knowledge and reputation of Portugal. Regularly PortugalFoods provides general information about foreign markets or either trends to all members and, when required, provides specific information or advice, e.g. if the firm should adapt its products to foreign markets. The members highlighted the effectiveness of PortugalFoods in improving the country’s image (Appendix B – Figure A.16), organizing fairs professionally or contact foreign players (distributors or customers) and showing the Portuguese products. However, the average of the scores assigned by the firms has shown that the overall influence of PortugalFoods is lower than the score attributed to the barriers (Appendix B – Figure A.5 and Table A.4). This lower score can be explained because when firms faced the majority of the barriers, PortugalFoods did not exist. PortugalFoods was only founded in the end of 2008 and by then the majority of the selected companies were already established in foreign markets. From the 14 firms interviewed, 10 considered the existing network essential to help facing barriers. Usually the exchange of information within the network occurs in an informal way. The important role of external agents noted by Rocha et al. (2007) was confirmed by company’s representatives that highlighted that they provide information about trends and help in dealing with legal aspects. To the other 4 firms, the network had no effect because they had no contacts in the industry that could help. This result is consistent with the Network Mode of Internationalization presented in chapter 1, according to which the network can have an important role to overcome the lack of information, through exchange of experiences and transfer of knowledge (Hadley & Wilson, 2003). In order to find out which reasons led companies aspiring an international activity to integrate a cluster and, what are they expecting from the cluster, the firms had to assign a score to goals with integration in the cluster (Appendix B – Figure A.10). It was found that firms aim to have mainly access to international information and access to a network and then opportunity to cooperation develop joint R&D. The first two goals are consistent with the Uppsala Model (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975) and the Network Model of Internationalization (Johanson & Mattsson, 1988; Johanson & Vahlne, 2009). According to these models, in order to 84 internationalize it is necessary to have a channel of regular information and to have a good position in a strong network. PortugalFoods acts as a facilitator and a booster in the internationalization of its members since it provides the needed information and helps them to build or improve their network. In addition, PortugalFoods promotes cooperation among its members to exchange experiences and/or even to develop joint R&D (Appendix B – Table A.8) Regarding the initiatives promoted by the cluster, these 14 member firms participated more in fairs and inverse missions (Appendix B – Figure A.15). Joint R&D activity is developed mainly by companies from the III and IV group. The existing literature about clusters highlights the trust relationships between clustered firms and the partnerships established in order to cooperate (Iammarino & McCann, 2006; Porter, 1998; Saxenian, 1996). Aiming to analyze the cooperation between members of PortugalFoods, during the interview some questions were made. The partnerships developed were promoted mainly by corporate initiatives but PortugalFoods has a major role in stimulating cooperation (Appendix B – Table A.8). An analysis of the scores assigned to questions related to cooperation leads to conclude that cooperation between associated members is low. Within the 14 firms, only 20 partners were identified, and the majority were identified by groups III and IV (Appendix B – Table A.6). This conclusion contradicts the idea of Zyglidopoulos et al. (2006) that, as firms internationalize, they reduce their degree of local cooperation and interaction. The 20 partners identified by firms were (Appendix B – Table A.6): 7 suppliers; 4 companies that develop complementary activities; 4 R&D institutions; 3 that develop the same activity and 2 clients. In the agrofood sector in Moderna, Bertolini & Giovannetti (2006) also noted firms that have mutual supply of products. The cooperation between companies that carry out complementary activities was also identified by Maskell (2001). Even if cooperation between associated firms is not very high, 5 out of 14 companies recognized cooperation with competitors (Appendix B – Table A.6). This result is 85 consistent with Porter’s idea that competition and cooperation can be promoted simultaneously within a cluster (Porter, 1998). In spite of the partners also having international activity, according to the interviewees, they did not influence the process of internationalization. The main reasons identified to cooperate were (Appendix B – Table A.7): to exchange knowledge and experiences; sharing of costs and getting access to a network. It was found that the 14 sampled companies share information with other members of PortugalFoods, often informally, and 13 stated that it had a positive effect but one firm from group III was not sure about the effect. The results found are consistent with Iammarino & McCann (2006) according to which an inflow of knowledge is always positive but an outflow may have a negative influence, which reflects the fear of the company from group III. To the overall influence of PortugalFoods in the internationalization process companies included attributed a medium score - 3 on a scale of 5 (Appendix B – Figure A.16). Nevertheless, firms highlighted the international consolidation of the firm’s image, encouraging to internationalize and provided access to strategic partners as the main factors in which had influence. Regarding the contribution of the cluster in improving performance in terms of sales, profits and innovation was the average rating of 2 on a scale of 5. It was mentioned in some interviews that PortugalFoods promoted some initiatives, for instance inverse missions, that did not have the expected result not because of the cluster’s fault but merely because it was not possible to do business. Even if PortugalFoods promotes various initiatives, it does not mean that these will always be reflected in terms of performance. In fact, with the support provided by PortugalFoods companies were able to more easily develop their foreign activities, which in the end will reflect an expected improvement of sales volume. This conclusion is consistent with Porter’s view that clustered firms have access to several resources that allow them to attain better performance (Porter, 1998). From the 14 companies interviewed, none identified any firm that has had a decisive role in their internationalization process, which indicates a complete absence of leading firms in PortugalFoods. 86 Conclusion and discussion of the main lessons gathered Clusters and internationalization are themes that individually captured the attention of researchers. Having roots in industrial districts (Marshall, 1920), the clusters literature highlights the interaction that occurs between their members, creating an environment that stimulates cooperation (Porter, 1998), knowledge spillovers (Iammarino & McCann, 2006), entrepreneurship (Delgado et al., 2010) and innovation (Engel & del- Palacio, 2009). The existing literature on internationalization emphasizes strategies than can be adopted by firms according to their capabilities: the Uppsala Model with a gradual internationalization strategy (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975); and Born Globals (Rennie, 1993) and International New Ventures (Oviatt & McDougall, 1995, 2005) corresponding to an accelerated internationalization strategy. In both strategies, the network and relationships established are central since they leverage the potential of the firms to internationalize. However, the literature focused on the interaction between clusters and internationalization is scare. The existent literature focus the role of the cluster’ network (Karlsen & Nordhus, 2011), leading firm’s (Rocha et al., 2007), cluster’ resources (Wilk & Fensterseifer, 2003; Zen et al., 2011), temporary clusters like fairs and conventions (Maskell et al., 2006) and of the cluster’s reputation (Zyglidopoulos et al., 2006) as a support in the internationalization process. There are some studies that shed some light on this issue but are scarce. The present study fills this gap and enriches the literature addressing the following research question: How does belonging to a Cluster influence the process of internationalization and the strategies of its members? An empirical application was developed, exploring the case of PortugalFoods, through 14 interviews with carefully selected companies. The firms were split into 4 groups each representing a phase in internationalization: group I - taking the first steps in exports; group II - developing exports activity; group III - consolidated exports; group IV - exporting companies with FDI. From this empirical application within PortugalFoods, some lessons are gathered about the internationalization process of Portuguese firms in agrofood sector and the influence of the cluster in the internationalization process of its members. 87 During the interviews it was found that the Portuguese firms started to expand abroad in order to overcome limitations of the domestic market, searching for potential markets where expected margins are higher. There is a close relationship between the international Portuguese communities and the companies’ target markets. The criteria for the choice of markets for FDI and exports do not differ much. In both the size and potential of the market was the most important criterion, followed by business opportunity, existing relationships or contact of a partner. It was found that the cluster had not a great influence on the choice of markets because, when PortugalFoods was founded, the majority of the firms interviewed already had the strategy and target markets well defined. Angola stands out as the oldest and most representative market in sales volume and is followed by France and Spain. It was also manifested by some firms that public incentives play a huge role in stimulating internationalization, which reinforces the role of public institutions and policies in supporting and stimulating internationalization. From the 14 firms interviewed, 10 companies, either from the initial or advanced internationalization stages, considered the existing network essential to help facing barriers. Through informal exchange of information and experiences, the companies fell more confident to evolve and further internationalization. Moreover, external agents had an important role, providing information about trends and helping to deal with legal aspects. PortugalFoods fits the definitions of clusters as described by several authors. As noted in Porter (1998)’s and Langen (2002)’s definition of cluster, PortugalFoods is formed by several actors from a related industry: firms and entities of scientific and technological system and regional and national bodies. Moreover, in PortugalFoods there are companies that develop complementary activities which is in agreement to Maskell (2001) idea of a cluster. Finally in PortugalFoods the two type of companies mentioned by Furlan & Grandinetti (2008) are present: companies that produce final goods and firms operating in the B2B market. It was found that the reasons that led firms aspiring an international activity to integrate a cluster are mainly access to international information and access to a network, which are pre-conditions to internationalize according to the Uppsala Model (Johanson & 88 Vahlne, 1977, 2009; Johanson & Wiedersheim-Paul, 1975), and then the opportunity to develop joint R&D. PortugalFoods acts as a facilitator and a booster in the internationalization of its members since it provides the needed information and helps members to build or enrich their network. As shown in the group analysis (section 2.2.3), to different stages of internationalization correspond different needs and difficulties. No significant differences among groups were found in terms of resources provided by the cluster. PortugalFoods has a set of resources that it provides to the members and then, in more specific issues, gives a more tailored support: contacts of partners, specific information on target markets or support to define positioning in foreign markets.The influence of PortugalFoods in getting financial resources is not unanimous between and inside groups. Despite a low overall score assigned and taking also into consideration what was shared during the interviews, PortugalFoods obtains effectively incentives to finance fairs. Concerning the cooperation between cluster members, it was found that the cooperation is low, since the 14 companies only identified 20 partners. Despite the low cooperation, 5 from 14 companies’ representatives recognized cooperation with competitors that are also members of the cluster. This simultaneous cooperation and competition within the cluster corroborates Porter (1998). In the interviews conducted, a firm with a leading or determinant role in others firms’ business or influencing the internationalization process was not identified, thus concluding in favor of the non-existence of a leading firm in PortugalFoods. Moreover, the subsidiary of a foreign MNE present in the cluster does not have any partnerships within PortugalFoods, which contradicts Elola et al. (2012)’s findings according to which a foreign subsidiary will promote an inflow of external knowledge. A key conclusion arises from the empirical application: despite the differences between the internationalization process of the firms and their capabilities or difficulties, PortugalFoods has a supportive role, providing access to specific information on international markets and contacts of important partners in their internationalization process. PortugalFoods does not have a decisive role, even in firms taking their first 89 steps, but provide the needed resources to evolve quickly and provide specific information to help making the right decisions and achieve goals. Although due to the support provided by PortugalFoods some firms carried out successful business, it is not possible yet to analyse and measure the true impact of PortugalFoods because the cluster is too young. It would be an interesting investigation to do that in the future. Additionally it was shown great interest in developing R&D and could be interesting to analyse the impact of PortugalFoods in R&D of clustered companies. The method found as the most appropriate to develop this dissertation was case studies through interviews. However this methodology does not allow an extensive quantitative treatment and the use of statistical inference or econometric techniques. Additionally, subjectivity and biases caused by respondents’ opinions may be present in the collected information during the interviews. Since PortugalFoods was founded recently, it is not possible yet to measure the impact of its activity on its members. 96 Zyglidopoulos, S. C., DeMartino, R. & Reid, D. M. (2006), "Cluster Reputation as a Facilitator in the Internationalization of Small and Medium-Sized Enterprises", Corporate Reputation Review, Vol. 9, Nº 1, pp. 79-87. 97 Appendices 98 Appendix A: Interview Guidelines Clusters and Internationalization This questionnaire is confidential and only will be used for research purposes in the context of the School of Economics and Business of the University of Porto. Interviewee: ___________________ Position in the company: __________________ A. General Data: Company name: _____________________________ Year of foundation: ______________ No. of employees (2013): ______________________ Turnover (2013): ________________ Family business? Yes ☐ No ☐ B. Internationalization Process: B.1. In which moment the internationalization process started? Year: __________ 1. At the foundation of the company ☐ 2. After the establishment in domestic market ☐ 3. Simultaneously with the establishment in the domestic market ☐ B.2. Motivations to internationalize (0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important) 0 1 2 3 4 5 1. Personal experience or entrepreneur / manager network ☐ ☐ ☐ ☐ ☐ ☐ 2. Access to new markets with growth potential ☐ ☐ ☐ ☐ ☐ ☐ 3. Limitations of the internal market ☐ ☐ ☐ ☐ ☐ ☐ 4. Demand for resources (human, natural, financial) ☐ ☐ ☐ ☐ ☐ ☐ 5. Demand for strategic assets (scientific and technologic) ☐ ☐ ☐ ☐ ☐ ☐ 6. Follow customers / partners ☐ ☐ ☐ ☐ ☐ ☐ 7. Follow competitors ☐ ☐ ☐ ☐ ☐ ☐ 8. Others – Which ones? ☐ ☐ ☐ ☐ ☐ ☐ B.3. Entry modes and establishment adopted by the company 1. Exports through distributor ☐ 2. Direct exports made by the company ☐ 3. Licensing/Franchising ☐ 4. Subcontracting ☐ 5. Other contractual forms (management contracts, distribution partnerships, shared production or strategic alliances ☐ 6. Establishment of a sales unit a) Set up of a firm abroad ☐ b) Acquisition of an existing firm abroad ☐ 99 7. Establishment of a manufacturing unit a) Set up of a firm abroad ☐ b) Acquisition of an existing firm abroad ☐ B.4. Markets B.4.1. Which are the most important factors in the selection of foreign markets? (0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important) Exports Foreign Units 0 1 2 3 4 5 0 1 2 3 4 5 1. Territorial proximity ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 2. Linguistic and cultural proximity ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 3. Market dimension / potential ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 4. Existing business or personal relationship ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 5. Contact of a partner ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 6. Being located near of the main competitors ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 7. Business opportunities ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 8. Motivated by the cluster ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 9. Others – Which ones? ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ B.4.2. List the first 3 international markets starting with the oldest entry B.4.2.1. Through exports Country 1: ______ Year: ___ Country 2: ______ Year: ___ Country 3: _______ Year: ___ B.4.2.2. Through foreign units (if applicable) Country 1: ______ Year: ___ Country 2: ______ Year: ___ Country 3: _______ Year: ___ B.4.3. List the first 3 exports international markets starting with the highest sales volume Country 1: ______ Year: ___ Country 2: ______ Year: ___ Country 3: _______ Year: ___ B.5. Export (data from the latest available year) Year:_________ % of exports in the sales volume: _______ Number of exporting countries: European Union _________ Total ________ B.6. Foreign units (data from the latest available year) Year: _________ Share (%) of sales units in the total of company turnover ________ Number. of countries with units: European Union _________ Total ________ 100 B.7. Has the company resorted to any external entity to set or monitor the process of internationalization? No ☐ Yes ☐ Which one? ___________________________ B.8. The company only operates under own brand or also with other brands? _____________________________________________________________________ B.9. To what extent have used the following sources to finance internationalization? (0 - Null; 1 - Residual; 2 - Partial; 3 - Majority; 4 - Exclusive) 0 1 2 3 4 1. Equity ☐ ☐ ☐ ☐ ☐ 2. Bank loans ☐ ☐ ☐ ☐ ☐ 3. Financial Incentives ☐ ☐ ☐ ☐ ☐ 4. Others – Which ones? ☐ ☐ ☐ ☐ ☐ B.10. What are the main barriers faced to internationalize and to what extent the PortugalFoods (PTFoods) helped to overcome them? (0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important) Barrier PTFoods Influence 0 1 2 3 4 5 0 1 2 3 4 5 1. Lack of knowledge about foreign markets ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 2. Linguistic and cultural differences ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 3. Lack of international experience ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 4. Disloyal or opportunistic behavior of partners ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 5. Hiring human resources with the required qualifications in the destination country ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 6. Accessing funding ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 7. Develop the organizational structure abroad ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 8. Strong competition in the target market in terms of price, quality or other factors ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 9. Control of distribution channels ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 10. Reputation of Portugal ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 11. Bureaucracy / legal aspect ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 12. Insufficient financial incentives ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 13. Another. – Which one? ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ B.11. The network was crucial to overcome some of the mentioned barriers? _____________________________________________________________________ 101 C. PortugalFoods Influence C.1. Year of association to PortugalFoods: ____________ C.2. Goals expected and benefits achieved with the integration in PortugalFoods: (0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important) Goal Benefits 0 1 2 3 4 5 0 1 2 3 4 5 1. Access to a network ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 2. Access to training / education ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 3. Access to skilled human resources ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 4. Access to knowledge about foreign markets ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 5. Access to incentives / financial resources ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 6. Opportunity to develop joint R&D ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ 7. Another – Which one? ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ C.3. Initiatives developed by PortugalFoods in which the company participated and their relevance: (0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important) 0 1 2 3 4 5 1. Fairs ☐ ☐ ☐ ☐ ☐ ☐ 2. Inverse missions ☐ ☐ ☐ ☐ ☐ ☐ 3. Workshops to share experiences ☐ ☐ ☐ ☐ ☐ ☐ 4. Joint R&D activities ☐ ☐ ☐ ☐ ☐ ☐ 5. Another – Which one? ☐ ☐ ☐ ☐ ☐ ☐ C.4. Which are the main partners within the PortugalFoods: 1. Companies that develop the same activity ☐ 2. Companies that develop complementary activities ☐ 3. Clients ☐ 4. Suppliers ☐ 5. R&D institutions ☐ 6. Another – Which one? ☐ C.5. Any of the partners had already started the internationalization process? Yes ☐ No ☐ If yes, the partner was present in any of the markets for which internationalized? Yes ☐ No ☐ The partners somehow influenced the internationalization process? Yes ☐ No ☐ 102 C.6. What are the reasons to cooperate: 1. Sharing of risk ☐ 2. Sharing of costs ☐ 3. Get access to a network ☐ 4. Opportunity to develop joint R&D ☐ 5. To exchange knowledge and experiences ☐ 6. Benefit the process of internationalization of partners ☐ 7. Another – Which one? ☐ C.7. Cooperation is mainly promoted by the initiative: 1. Companies ☐ 2. PortugalFoods ☐ 3. External entity ☐ 4. Another – Which one? ☐ C.8. The company cooperates with any competitor that is also a member of PortugalFoods? Yes ☐ No ☐ C.9. Usually the company shares knowledge with other members of PortugalFoods? Yes ☐ No ☐ If yes, the effect of that sharing is: Positive ☐ Negative ☐ C.10. The R&D activity is developed: 1. Isolated ☐ 2. In partnership with PortugalFoods ☐ 3. With partners / institutions external to PortugalFoods ☐ C.11. At what stage in the history of the company did the investment in innovation increase? C.12. Please classify the influence of PortugalFoods in the internationalization process in terms of: (0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important) 0 1 2 3 4 5 1. Encouraging to internationalize ☐ ☐ ☐ ☐ ☐ ☐ 2. Choice of countries ☐ ☐ ☐ ☐ ☐ ☐ 3. Access to strategic partners ☐ ☐ ☐ ☐ ☐ ☐ 4. Access to financial resources ☐ ☐ ☐ ☐ ☐ ☐ 103 0 1 2 3 4 5 5. Contributed to improved performance in terms of: a) Sales increase ☐ ☐ ☐ ☐ ☐ ☐ b) Profits ☐ ☐ ☐ ☐ ☐ ☐ c) Innovation ☐ ☐ ☐ ☐ ☐ ☐ 6. International consolidation of company image ☐ ☐ ☐ ☐ ☐ ☐ C.13. Is there any PortugalFoods associated company that had a decisive role in the company's internationalization process? Yes ☐ No ☐ _____________________________________________________________________ 104 Appendix B: Tables Table A.1: Selected companies divided by groups Legend: M – Millions of Euros; Company age – Number of years since company foundation. Source: Own elaboration. Groups Name Dimension Nr Employees Turnover in 2013 (€) Company age Nr of years of internationalization Year of PTFoods membership No. of Markets I Taking the first steps in exports A Micro 4 200.000 1 1 2013 3 B Micro 1 20.000 3 3 2013 3 II Developing exports activity C SME 20 2 M 23 2 2011 7 D SME 25 2 M 11 9 2008 7 E Large 600 118 M 14 5 2013 15 III Consolidated exports F SME 50 8-10 M 19 17 2010 30 G SME 160 21 M 32 29 2011 23 H SME 199 31 M 71 22 2009 45 I SME 150 7 M 76 76 2012 8 J SME 230 30 M 161 161 2008 45 IV Exporting companies with FDI K SME 65 3 M 32 10 2012 4 L Large 900 200 M 53 44 2011 >30 M Large 650 200 M 95 20 2010 38 N Large 550 105 M 27 24 2008 20 111 Appendix C: Figures Figure A.1: Motivations to Internationalize (Interview Guideline B.2.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Motivations: 1- Personal experience or entrepreneur/manager network 2- Access to new markets with growth potential 3- Limitations of the internal market 4- Demand for resources (human, natural, financial) 5- Demand for strategic assets (scientific and technologic) 6- Follow customers / partners 7- Follow competitors Source: Own elaboration. 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00 1 2 3 4 5 6 7 Assigned score Motivations Motivations to internationalize General Group I Group II Group III Group IV 112 Figure A.2: The most important factors in the selection of foreign markets (Interview Guideline B.4.1.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Factors: 1- Territorial proximity 2- Linguistic/cultural proximity 3- Market dimension/potential 4- Existing business or personal relationship 5- Contact of a partner 6- Located near of competitors 7- Business opportunities 8- Motivated by the cluster Source: Own elaboration. 0,00 1,00 2,00 3,00 4,00 5,00 6,00 1 2 3 4 5 6 7 8 Assigned score Factors in the selection of foreign markets The most important factors in the selection of foreign markets General Group I Group II Group III Group IV 113 Figure A.3: The most important factors in the selection of foreign markets – Group IV (Interview Guideline B.4.1.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Factors: 1- Territorial proximity 2- Linguistic/cultural proximity 3- Market dimension/potential 4- Existing business or personal relationship 5- Contact of a partner 6- Located near of competitors 7- Business opportunities 8- Motivated by the cluster Source: Own elaboration. 0,00 1,00 2,00 3,00 4,00 5,00 6,00 1 2 3 4 5 6 7 8 Assigned score Factors in the selection of foreign markets The most important factors in the selection of foreign markets - Group IV Markets to export Markets to foreign units 114 Figure A.4: Sources to finance internationalization (Interview Guideline B.9.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Null; 1 – Residual; 2 – Partial; 3 – Majority; 4 – Exclusive Source: Own elaboration. 0,00 1,00 2,00 3,00 4,00 General Group I Group II Group III Group IV Assigned score Group Sources to finance internationalization 3. Financial Incentives 2. Bank loans 1. Equity 115 Figure A.5: Barriers to internationalize and PortugalFoods (PTFoods) influence - General Analysis (Interview Guideline B.10.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Barriers: 1- Lack of knowledge 2- Linguistic and cultural differences 3- Lack of international experience 4- Behavior of partners 5- Hiring human resources aboard 6- Access to funding 7- Develop the organizational structure 8- Strong competition aboard 9- Control of distribution channels 10- Reputation of Portugal 11- Bureaucracy / legal aspect 12- Insufficient financial incentives Source: Own elaboration. 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 1 2 3 4 5 6 7 8 9 10 11 12 Assigned score Barriers Barriers to internationalize and PTFoods influence General Analysis Barrier PTFoods Influence 116 Figure A.6: Barriers to internationalize and PortugalFoods (PTFoods) influence – Group I (Interview Guideline B.10.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Barriers are the same as in Figure A.5. Source: Own elaboration. Figure A.7: Barriers to internationalize and PortugalFoods (PTFoods) influence – Group II (Interview Guideline B.10.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Barriers are the same as in Figure A.5. Source: Own elaboration. 0,00 1,00 2,00 3,00 4,00 5,00 1 2 3 4 5 6 7 8 9 10 11 12 Assigned score Barriers Barriers to internationalize and PTFoods influence Group I Barrier PTFoods Influence 0,00 1,00 2,00 3,00 4,00 5,00 1 2 3 4 5 6 7 8 9 10 11 12 Assigned score Barriers Barriers to internationalize and PTFoods influence Group II Barrier PTFoods Influence 117 Figure A.8: Barriers to internationalize and PortugalFoods (PTFoods) influence - Group III (Interview Guideline B.10.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Barriers are the same as in Figure A.5. Source: Own elaboration. Figure A.9: Barriers to internationalize and PortugalFoods (PTFoods) influence - Group IV (Interview Guideline B.10.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Barriers are the same as in Figure A.5. Source: Own elaboration. 0,00 1,00 2,00 3,00 4,00 5,00 1 2 3 4 5 6 7 8 9 10 11 12 Assigned score Barriers Barriers to internationalize and PTFoods influence Group III Barrier PTFoods Influence 0,00 1,00 2,00 3,00 4,00 5,00 1 2 3 4 5 6 7 8 9 10 11 12 Assigned score Barriers Barriers to internationalize and PTFoods influence Group IV Barrier PTFoods Influence 118 Figure A.10: Goals expected and benefits achieved with the integration in PortugalFoods – General Analysis (Interview Guideline C.2.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Goals and Benefits: 1- Access to a network 2- Access to training / education 3- Access to skilled human resources 4- Access to international information 5- Access to incentives/financial resources 6- Develop R&D Source: Own elaboration. 0,00 1,00 2,00 3,00 4,00 5,00 1 2 3 4 5 6 Assigned score Goals and benefits Goals and benefits with the integration in PortugalFoods - General Analysis Goal Benefit 119 Figure A.11: Goals expected and benefits achieved with the integration in PortugalFoods – Group I (Interview Guideline C.2.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Goals and benefits are the same as in Figure A.10. Source: Own elaboration. Figure A.12: Goals expected and benefits achieved with the integration in PortugalFoods – Group II (Interview Guideline C.2.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Goals and benefits are the same as in Figure A.10. Source: Own elaboration. 0,00 1,00 2,00 3,00 4,00 5,00 1 2 3 4 5 6 Assigned score Goals and benefits Goals and benefits with the integration in PortugalFoods Group I Goal Benefit 0,00 1,00 2,00 3,00 4,00 1 2 3 4 5 6 Assigned score Goals and benefits Goals and benefits with the integration in PortugalFoods Group II Goal Benefit 120 Figure A.13: Goals expected and benefits achieved with the integration in PortugalFoods – Group III (Interview Guideline C.2.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Goals and benefits are the same as in Figure A.10. Source: Own elaboration. Figure A.14: Goals expected and benefits achieved with the integration in PortugalFoods – Group IV (Interview Guideline C.2.) Observation: calculated using the average of assigned scores. Assigned score: 0 – Not applicable; 1 – Nothing important; 2 – Not very important; 3 – Moderately important; 4 – Very Important; 5 – Extremely important Goals and benefits are the same as in Figure A.10. Source: Own elaboration. 0,00 1,00 2,00 3,00 4,00 5,00 1 2 3 4 5 6 Assigned score Goals and benefits Goals and benefits with the integration in PortugalFoods Group III Goal Benefit 0,00 1,00 2,00 3,00 4,00 5,00 1 2 3 4 5 6 Assigned score Goals and benefits Goals and benefits with the integration in PortugalFoods Group IV Goal Benefit